Redundancy is stressful enough without tax confusion. We explain which parts of your payout are tax-free, check you have not been overtaxed, reclaim anything owed, and make sure your tax for the year is right.
Redundancy & Tax
Genuine redundancy payments are tax-free up to £30,000, but not everything in a settlement qualifies. Statutory and genuine ex-gratia redundancy pay usually falls within the exemption, while pay in lieu of notice, holiday pay, bonuses and any contractual amounts are taxable and subject to National Insurance. Employers do not always apply the rules correctly, and the way payouts are taxed through PAYE often leaves people overtaxed.
Your Tax Help Accountants checks your settlement and payslips, confirms how much of your payout is genuinely tax-free, and makes sure the taxable elements have been treated correctly. Where you have been overtaxed, which is common when a large payment hits PAYE, we reclaim the overpayment from HMRC. And if losing your job changes your income for the year, we get your overall tax position right, including any move into self-employment or a new role.
Large one-off payments are often taxed too heavily under PAYE because the tax system assumes you will keep earning at that rate. If you were made redundant partway through the year, you have very likely overpaid, and we can reclaim it.
The Detail That Matters
The first £30,000 of a genuine redundancy payment is tax-free, but not everything in a settlement qualifies, and how the package is structured decides how much tax you pay. Employers often get the split wrong, leaving you overtaxed.
Genuine redundancy and ex-gratia termination payments are tax-free up to £30,000. Above that, the excess is taxable as income, and since April 2020 employer Class 1A National Insurance applies to the excess too, though there is no employee National Insurance on it.
Pay in lieu of notice (PILON) is now always taxable and NICable, as is holiday pay, a contractual bonus, or anything you were entitled to under your contract. Only the genuine compensation-for-loss-of-job element gets the £30,000 exemption, so the split in your settlement matters.
Where a package exceeds £30,000, asking your employer to pay the excess directly into your pension can avoid Income Tax on it entirely, subject to your annual allowance. This is one of the most valuable moves available on a larger settlement.
Redundancy often falls late in the tax year on an emergency code, so tax is frequently overdeducted. If you do not work for the rest of the year, a repayment is usually due, and we reclaim it rather than waiting for it to unwind.
The biggest trap is a settlement that labels taxable elements (notice, bonus, holiday) as part of the tax-free £30,000, so HMRC later reclaims the tax, or an emergency code that overtaxes the payment and is never reclaimed.
Key Figures
How We Help
We confirm exactly how much of your redundancy package is genuinely tax-free and which parts, such as notice and holiday pay, are taxable, so nothing is miscalculated.
A large payout through PAYE, or leaving partway through the year, often means you have overpaid. We check and reclaim any refund you are owed from HMRC.
Redundancy changes your income for the year. Whether you take a new job, go self-employed or take a break, we get your overall tax right and claim what you are due.
All the forms, calculations and correspondence handled on your behalf, so you never have to decode HMRC's rules or sit on hold.
A clear fixed fee quoted after a free call, your position explained in plain English, and never a surprise bill.
We act quickly, and where earlier years are involved we put those right too, reclaiming refunds or minimising penalties.
Two things go wrong after redundancy: people assume the whole payout is tax-free when part of it is taxable, and people who were overtaxed on a big PAYE payment never reclaim it. Either way, money is lost. We check your settlement, get the treatment right, and recover any refund.
Recent Client Outcome
A client was made redundant with a £55,000 package and had emergency tax deducted from most of it.
What we did. We confirmed £30,000 qualified as tax-free redundancy, identified that £9,000 of PILON and holiday pay was correctly taxable, and arranged for the remaining £16,000 of compensation to be paid into their pension rather than taken as cash.
The outcome. Only the £9,000 was taxed as income, the £16,000 went into the pension free of Income Tax, and we reclaimed the emergency tax overdeducted at source, recovering several thousand pounds.
Structuring the package correctly, rather than accepting the employer's default split, saved a large amount of tax and boosted their pension.
Why People Come to Us
Questions Answered
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