Q: I am being made redundant from my company and I want to know if my redundancy package of £25,000 will be taxed? And will it affect my right to Job seekers Allowance and can I make a claim right away?
A: A statutory redundancy payment is a payment in compensation for loss of a job rather than wages. As such, it is tax-free up to the first £30,000. Over this amount, it is taxable at the client’s normal tax rate.
All redundancy payments are exempt from national insurance contributions, even if they are over £30,000.
To determine how much tax (if any) is payable, the redundancy payment will be added to any other payment the client receives as compensation for loss of their job. An employee will not have to pay tax on a total of these payments up to £30,000.
If you work your notice, you’ll be taxed at the usual rate on the money you earn in your notice period. Pay in Lieu of Notice is only taxable if it’s been provided for in your contract, or is customary. Otherwise, it is not taxable unless the Pay in Lieu of Notice together with redundancy and other compensation adds up to more than £30,000, in which case anything over £30,000 is taxable at the usual rate.
The effect on Job Seekers Allowance is as follows: A statutory redundancy payment counts as capital and does not therefore affect contribution-based JSA, but it may affect income-based JSA.
A claimant who was in full-time work will not be treated as if they are in full-time work because of pay in lieu of notice, and it will not affect the calculation of their income for these benefits, in most circumstances, and therefore can make the claim right away.
Your redundancy package may include other elements. To find out how they may be affected get free, confidential and independent advice from your nearest Citizens Advice Bureau – go to www.adviceguide.org.uk or call at: Newtownabbey Citizens Advice Bureaux Dunanney Centre, Rathmullan Drive, Rathcoole, Newtownabbey, BT37 9DQ. Telephone advice is available 9am-4pm each day 028 90852271 (lunch 1-1.30pm). Email advice is available by contacting firstname.lastname@example.org