Redundancy & Tax 4 March 2020 at 8:28AM in Redundancy & redundancy planning 2 replies 141 views

winter02

Hi everyone - I'm wondering if anyone has gone through the same experience as I am about to ? I will be being made redundant in June and will be receiving a payment of around £51,000. I am aware that the first 30k is tax and NI free and I won't pay NI on the remaining 21k but is there a chance that I will get over taxed on that 21k? I'm currently in the 20% tax bracket and I'm not sure if the time of year you are paid the redundancy has any bearing on the tax that is paid?
Thanks

blue.peter

You will be taxed on £21,000 as income received in the present year. I would expect the tax calculation to assume that you will receive that much every month for the rest of the tax year. This is likely to mean that you'll get hit for an unduly high amount of tax.

Any excess can be claimed back from HMRC. However, my recollection is that it's only if you won't be working again in the same tax year that you can claim that overpayment back more or less immediately. (I was able to do so in November 2015 after I was made redundant in October, but only because I had no intention of seeking any further employment.)

In most cases, you'll have to wait until after the end of the tax year, when it'll get sorted automatically by HMRC.

dori2o

There are a couple of things to consider.
1, if you will not be working again, nor claiming a taxable benefit, i.e. Jobseekers, in the tax year you can claim back any overpaid tax immediately as blue.peter has said.
2, if you will be working again or will be claiming jobseekers allowance, then there are 2 options.
a) if you work again then any overpaid tax will be repaid as the year goes on with your new salary by adjusting your weekly/monthly tax deduction when you are paid. This will happen automatically when you hand in your P45 assuming that the taxable redundancy pay is included on the P45.
b) if you claim JSA then as long as you hand in the P45 on the day you make your claim/have your first interview at the jobcentre then you will get the overpaid tax due back when you sign off/at the end of the tax year, whichever comes first, paid by the jobcentre.
c) if you expect to go back to work at some point before the end of the tax year, and dont claim JSA, then you can claim an unemployment repayment every 4 weeks, with the first claim being 4 weeks after your final pay from your employer.  Again this would require the P45 your employer issues to include the pay/tax including the taxable redundancy pay.