We can help you prepare for redundancy and move onto the next phase of your working life.
Threats of redundancies are a terrible strain to work under. With so many large companies going under, it’s not surprising that so many more people are worrying about its potential impact. It just takes a news story about one firm in your industry and ripples of panic spread.
We don’t want people fearing half truths. Facts are the antidote to rumours. You need to know what to do if the worst happens and you’re in the next tranche of redundancies at your company. We’ve put together this article so you know:
- What statutory redundancy pay is
- Tax implications of redundancy pay
- Other things to consider: Redundancy Checklist
- Tax refunds after redundancy
- How we can help you sort yourself out
What is statutory redundancy pay?
The numbers are the most important survival information for people who are just made redundant, so let’s get straight to the point. For the 2019-20 tax year, your statutory redundancy pay is worth:
- For every full year you worked under the age of 22: half a week’s pay per year.
- For every year between the ages of 22 and 41: one week’s pay for each year.
- For every year you worked there over the age of 41: one and a half week’s pay per year.
Other current essential number facts:
- Weekly maximum amount available: £525.00
- Maximum total redundancy payout: £15,570
- Length of service ceiling is 20 years
Statutory redundancy pay is a legal requirement set by the government. It is what all companies have to pay you, by law, if they make you redundant. Your contract may enable you to claim more, but this is the minimum. There are qualifying criteria you must meet. The main one is that you have worked at the company for a minimum of two years before you are made redundant.
What if they are only temporary redundancies?
You can still claim statutory redundancy pay if you are only temporarily made redundant. In this situation, there are additional eligibility criteria:
- You are on half pay, or no pay for;
- Either four weeks in a row, or;
- Six weeks within a thirteen week period, not necessarily consecutively.
It is very important that you don’t delay making your redundancy pay claim. You only have a month from your last out-of-work day in the four or six weeks you are claiming for. Do not hang about. Get this to your boss, in writing, immediately.
But the company is bankrupt, how will they be able to pay me even the minimum redundancy amount?
If the business you worked for has gone completely bust, you need to claim your statutory redundancy payment from the Redundancy Payment Office instead of your employer. You can do this online at Gov.UK within six months of being made redundant.
Redundancy Checklist
You need to check your own situation to make sure that you know about everything you are entitled to claim from your employer after redundancy.
- Bonuses
- Commissions
- Holiday pay
You should also find out if there are any state benefits that can tide you over until you start your next job. Jobseekers’ Allowance, Universal Credit and Housing Benefit are the most likely to apply to your position.
Are statutory redundancy payments taxed?
No, because the maximum statutory redundancy payment is £15,750, it is not taxed. Any redundancy payments that are £30,000 and over are subject to income tax.
What about National Insurance Contributions?
You do not have to pay NICs on your basic statutory redundancy payout. Holiday pay is taxed as normal, with applicable NICs. If you have an occupational pension, this is also taxed but no NICs are due. If you get any perk as part of your package, HMRC will work out its monetary value to add to your total. If that comes to £30,000 or more, it will become taxable.
In the unlikely event that you are fired for misconduct, you will not be entitled to a single penny.
Do I get a separate tax bill from HMRC?
Remember, you are only taxed on your redundancy money if you get over £30,000. A comparatively good position to be in. The question of how you pay this to HMRC depends on your employer’s situation.
A redundancy payment is usually automatically taxed if you get the money before you receive your P45. It’s taken care of within that form’s process.
Otherwise, you might be assigned an OT tax code, which indicates that you are not entitled to any Personal Allowance. This means that you need to make a claim to recover that money from HMRC.
Can I claim any tax refunds after being made redundant?
As ever, this all depends on your individual financial and employment circumstances. Factors like how much tax you pay and your tax code are based on a completed 12 months of earnings. So, if you’ve been made redundant, the rest of that year’s salary won’t be paid. This means that you may have overpaid tax on the previous, employed months. Often, if you are quickly into a new job, your next employer can sort this out through the PAYE system. If it’s taking time to find work, then give HMRC a call.
Do I need a lot of paperwork to make a tax refund claim?
You do need different types of evidence for the different tax refunds available. In case of redundancy, you need your P45, P50 and any other work expenses evidence you have. Don’t just throw it all out because you no longer work there. The amount you can claim totally depends on your situation.
Will HMRC automatically give me a tax refund?
There are some circumstances which have procedures set up to enable HMRC to automatically give you a tax refund. If you quickly start new employment, the PAYE system has this capacity, as long as your new employer has your P45. Also, if you have been able to use any taxable state benefits, your tax refund can be sorted out using your P45 information without going through the claims process.
Otherwise, you will need to make a tax refund claim using the official online documents.
Getting sorted: Have you thought about self employment?
Lots of people use their redundancy payout as seed money to start their own business. We can certainly help get you set up for things like self assessment tax returns, CIS tax rebates and keeping the right evidence for Capital Allowance claims. Getting good practice embedded at the start will make your self employment journey so much smoother as you take your exciting next steps.
We make our free money section available for additional support. You’ll find free guides about subjects including self employment and being a parent and handy calculators on things like budgets, savings and loans.
Without a doubt, redundancy can be a massive blow especially if it’s unexpected. But after the shock has worn off, it can become an excellent opportunity to try something new or start out on your own.
