Facing redundancy can be really difficult. It's a time of your life that you wish wasn't happening. It can put stress on your family life, your finances and your future. It might be a new company that you recently joined where you're the last one in, first one out. However it could simply be the business you've been in for a couple of decades, giving the best years of your life to, has simply failed. Perhaps it didn't adapt or like many recently, has been hit badly by global events. Whatever the reason you find yourself facing redundancy, you need to ensure you ask yourself some questions. Questions like where do you go from here? What job are you suitable for now? Do you get taxed on redundancy pay?
What Exactly Is Redundancy?
It might be obvious to a lot of people what redundancy is, but for someone, this might be the first time they've experienced it. Redundancy is a form of dismissal from your employer, due to the business needing to reduce their staff numbers. If you are selected for redundancy you will have been done on a number of things, but always in a fair way. Never based on your age, gender, a disability of if you are pregnant. This would come under the umbrella of unfair dismissal.
It will usually come down to the level of experience you have in the job or ability to do the role. When facing redundancy you will be eligible for a number of things including redundancy pay, a consultation with your employer and a notice period should you be leaving your role. They must also look at the potential for moving into a different job within the company and give you time off to find a new job should you need it. Redundancy pay can be a big help when losing your job. However, do you get taxed on redundancy pay?
Is Redundancy Pay Taxable?
So do you get taxed on redundancy pay? That's the question you want answering, that's why you came here in the first place. Redundancy pay is viewed as compensation for losing your job. It is not a wage. It is a one off compensation payment which is actually subject to special tax treatment. This means you can get up to £30,000 for free. Without paying tax. So the answer to your question of do you get taxed on redundancy pay, in simple terms, no. It's not.
You need to consider anything that isn't cash in your redundancy payment package too. For example, a car, this would be given a cash value and which would be added to the amount you're being paid. Remember, these extras could end up taking you over that £30k threshold. If your payout is over that amount and you get taxed, triple check that the right amount of tax has been taken off. Nine times out of ten it can be wrong and you can claim back tax should you need to.
Exceptions To The Rule
As with many things in life though, there are exceptions to the rule. You are entitled to up to £30,000 tax free as a redundancy payout, however, holiday pay, unpaid wages, overtime and bonuses are treated in the same way that wages are. This means you will be taxed on them. If you have any unpaid wages you will find that tax and National Insurance contributions are taken from these amounts. This is the same for unused holiday, those hours of overtime you worked over the summer months and that bonus which was due at the end of the month. Some of these may only be paid after your employment has terminated, but they will still be taxed.
If you were in a role where you got a regular commission or bonus pay then these should also be used when figuring out your redundancy pay. These would be part of your £30k exemption from tax. This is perfect if your commission is considered part of your weekly or monthly wage. If it isn't, you'll be taxed on it. Prepare your taxes soon.
A Final Note
This will not define you. You might feel low and down and a little bit out of it right now, however many people who have been through redundancy have spoken about how it was the making of them. When one door closes we can party in the hallway until another opens. Or maybe look for a window to knock on instead! This is the closure on a chapter of your life and a new chapter is about to start up. Don't forget to look at the Government website about your rights when you are facing redundancy. Know your rights, get what you are entitled to and see where this next part of the book is taking you.