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Redundancy can be a difficult time, especially if you loved your job and it was bringing in a suitable income for your lifestyle. Find out how redundancy can affect you when it comes to tax and other factors.
What is redundancy pay?
If your employer informs you that your job is no longer necessary to the business, you are likely to be made redundant. If this happens, you will receive redundancy pay, at a rate that is dependent on how long you have worked at the business.
Do you pay tax on redundancy pay?
You will not pay any tax or National Insurance contributions on a redundancy payment up to £30,000. If your redundancy package includes any non-cash benefits (like a car or electrical device) then this will be given a value and it will be included in the £30,000 limit.
How much redundancy pay will you be owed?
The amount of statutory redundancy pay you receive will be dependent on the length of time you have been with your employer. The length of service for redundancy pay is capped at 20 years.
If you have been with your employer for more than two years at the point of being made redundant, you will be entitled to:
- Half a week’s pay for each year of employment if under the age of 22
- A week’s pay for each year of employment if aged between 22 and 40
- A week and a half’s pay for each year of employment if aged over 41
If your age changes during your employment and you find you cross into several or all these categories, you will be paid depending on how long you were employed within that bracket.
For example, a fifty year old who has been made redundant from a company they worked at for fifteen years will receive:
- A week and a half’s pay for each of the nine years worked over the age of 41
- A week’s pay for each of the six years worked between the ages of 22 and 40
It’s worth noting that, currently, a week’s pay for redundancy is capped at £525 a week.
What should you do if you’re made redundant?
If you are made redundant, you should do your best to take stock of what you have saved up, and make sure you pay your bills on time and in full. Falling behind on obligatory payments could result in you being chased for money. Interest and charges may be added on top too.
This may mean you have to rein in your ‘luxury’ spending until you are back in work and receiving a regular income again.
It will be worth seeing which benefits are available to you whilst you are out of work, as this may help you cover your living costs at the very least. You may be able to claim Jobseeker’s Allowance and other sources of income whilst out of work, so it’s worth seeing what you are eligible for.
You should take the time to make sure your next career move is ideal for you. If you have been made redundant, you may be told to leave the company immediately with full pay during your notice period.
Alternatively, you may be asked to remain at work but will be given a ‘reasonable’ amount of time to seek new employment and attend interviews. If you find that the employer you are due to leave is restricting you from doing this, you should bring this up with the HR department or contact your local Citizens Advice for help.
Seek advice today
If you have lost your job and are struggling to keep up with the everyday bills, speak to a professional adviser at PayPlan today. Call the team today on 0800 280 2816.