If an employee was furloughed prior to being made redundant the average weekly pay is their normal wage rather than any reduced amount they may have been paid during furlough. Your employer should take the tax from your redundancy payment and pay it to IR for you. Redundancy pay (including any severance pay) under £30,000 is not taxable. © 2021 The Low incomes Tax Reform Group is an initiative I earn less than £50K, so normally pay 20% tax after my allowance, but my final payslip included my redundance pay and I paid 40% tax. Are you likely to be made redundant? Anything extra benefits you are given by your employer will also be taxed … The first £30,000 of redundancy pay is free of tax. They have substantial payments received on the April 2020 payroll (tax month 1) They have not worked for 20/21 so it being taxed in 20/21 is a clear advantage. For more information on redundancy or leaving your job have a look at GOV.UK. It is worth noting that in April 2020, a new employer’s NIC charge at 13.8% was introduced on the excess of termination payments over the £30,000 exemption. There is an overall maximum amount of redundancy pay you can get which is capped at £16,140 in 2020/21 (£16,800 in Northern Ireland), even if your actual earnings are higher or your length of service is longer than this. Because of the way that relief for the personal allowance is given through the payroll, if Tom does not work for the rest of the year, or only has a small income, such as JSA, he may find that he can claim a tax refund for the year of redundancy because of unused personal allowances. If you have more than one job the exemption applies to each job – see the, The employers are connected or associated in some way, for example one company owns all the shares in the other or someone has two businesses – see the, You go back to work for the same employer – see the. With regards to NIC on taxable payments made after the P45 has been issued, your employer should deduct NIC as normal – unless it is an ‘irregular’ payment like accrued holiday pay in which case they should treat it as a weekly payment. Your employer will deduct tax and National Insurance contributions from any wages or holiday pay they owe you. If your redundancy was considered genuine, you should receive your genuine redundancy payment tax-free up to a limit. What if I am in the armed forces and working overseas? so is taxed. Employers making a redundancy payment will be required to tax the portion of the payment that is equivalent to the basic pay that would have been earned had the employee worked through their notice period. The tax treatment of payments received on leaving the armed forces are covered on our page Termination of payments on leaving the armed forces. Your genuine redundancy payment is: 1. tax-free up to a limit based on your years of service 2. concessionally taxed as an employment termination payment (ETP) above your tax-free limit 3. taxed at your us… If your annual salary teeters on the edge of the tax brackets, redundancy pay may push you into a higher tax band. HMRC’s technical information on redundancy payments, can be found in their EIM manual, starting at EIM13750. This means he has only one exemption of £30,000 to use. As a result the whole of the first payment of £25,000 is exempt, but only £5,000 of the second payment. Whatever is left over of the £30,000 exemption is available to set against any ‘extra’ amount of redundancy payment that you might receive from your employer. Holiday pay: this is treated in the same way as wages, so it is taxable in full and subject to NIC. As above only £25,000 of the payment is taxable. About how you use GOV.UK, usually provided to the employee, instead recurring! 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