Where does redundancy/severance pay show up on a payslip? Tax and NI implications

What_time_is_it

Hi there.

I am due to receive a redundancy payment at the end of December. I want to maximise my additional pension contributions, minimise my tax and NI, and retain all of the £30k tax free element as cash. How do I do this?

Basically, I'm not sure where the redundancy pay shows up on a payslip? It is on the gross (left hand side) as income? Or on the deductions side and outside of income?

Let's say my December pay is £4,000 and my redundancy pay is £36,000.
Will my gross pay show as £40,000?
Or will my gross pay show as £4,000, with the £36,000 on the "other side" of the payslip?
Or will my gross pay as £10,000 (i.e. just the £4k plus £6k taxable element), with the remaining £30,000 on the "other side"?

I'm really struggling to understand how it will show up and how it will impact my tax situation.

Thanks!

Hoenir

The tax free element will be paid tax free. Payroll systems are built to handle all manner of ad-hoc payments. 

What_time_is_it

Thanks @Hoenir.
Does the tax free element show up as gross income? I'm thinking in terms of how it will effect my total gross income for the year in terms of the tax I have to pay on savings interest. If it counts as gross income then I will only get £1,000 tax free saving interest. If it doesn't then I will have potentially around £4,000 of tax free savings interest.
It also affects how much I can contribute to my pension through salary sacrifice.

tizerbelle

It will show in Total Gross but not in Taxable Gross figures

What_time_is_it

tizerbelle said:

It will show in Total Gross but not in Taxable Gross figures

So will it form part of my "income" for the current tax year, in terms of working out how much tax I have to pay on my savings interest?

tizerbelle

What_time_is_it said:

tizerbelle said:

It will show in Total Gross but not in Taxable Gross figures

So will it form part of my "income" for the current tax year, in terms of working out how much tax I have to pay on my savings interest?

There are 2 seperate figures listed on a payslip:
Total Gross - which is everything you are paid (taxable or not), and
Taxable Gross - which is just what you are paid that is subject to tax. 
Your P60 for example will report the Taxable Gross figure not the Total Gross.  Thr Taxable Gross is the figure that HMRC are interested in.  

What_time_is_it

Thanks Tizerbelle. So for the purposes of payment tax on interest, it will be my taxable gross that is the crucial figure then? (e.g. My total gross for 2024/25 = £45,000, My taxable gross would be £15,000. Using the first figure gives me £1,000 of tax free interest on savings. Using the second figure gives me £3,570 of tax free interest on savings.)

And for the purposes of salary sacrifice, where I have to ensure my gross pay remains above the National Minimum Wage, should I be looking at the total gross or the taxable gross?

tizerbelle

Simplistically, you need to look at the total gross for NMW compliance (not taxable gross). 

As ever it's a bit more nuanced than that and some payments dont count towards NMW e.g. tips, advances, loans, premium payments (if you get overtime at 1.5 times your normal rate, the 0.5 doesn't count for NMW but the 1.0 does!) etc

ManMadeWays

If it helps I just had my final "payslip", on the earnings side I had

Payment in Lieu                        xx,000.00

Termination Payment Non-Tax 30,000.00

Termination Payment Taxable   yy,000.00

Deductions, huge amount of tax !,  0T was used as the code, and circa £600 (for me ) NI

Taxable pay to date excluded the £30k, but was correct including the Pay in lieu and termination payment taxable

In the 3 pay periods before I left I upped my Salary sacrifice pension percentage to 70% , and will now make a further pension payment calculated to eliminate any Higher Rate tax being paid !

Hope that helps

penners324

The ex gratitude tax free payment is not considered as income by hmrc

Cobbler_tone

ManMadeWays said:

If it helps I just had my final "payslip", on the earnings side I had

Payment in Lieu                        xx,000.00

Termination Payment Non-Tax 30,000.00

Termination Payment Taxable   yy,000.00

Deductions, huge amount of tax !,  0T was used as the code, and circa £600 (for me ) NI

Taxable pay to date excluded the £30k, but was correct including the Pay in lieu and termination payment taxable

In the 3 pay periods before I left I upped my Salary sacrifice pension percentage to 70% , and will now make a further pension payment calculated to eliminate any Higher Rate tax being paid !

Hope that helps

An employer could/should pay your redundancy (over the £30k) into your pension if you request it (subject to contributions over past 3 years), paying it in the most tax efficient way for those choosing this route. It is what is detailed in our redundancy policy.