Redundancy payments

I have just been told that I am being made redundant in a couple of months and that my redundancy package is going to be £50,000 and the gift of my company car. I am obviously really worried about my finances, so could you tell me how much tax will be taken from this, so that I know how much net pay I am left to budget with

1st September 2011

The first £30,000 of redundancy pay is not normally taxable and nor does it attract national insurance, as redundancy pay is simply compensation from your employer for losing your job.

If any of the £50,000 is unpaid wages or a bonus, then that element would be subject to tax and national insurance as normal though.

The car will need to be valued for tax and national insurance purposes. It will then be counted as part of your overall redundancy package and the total would be subject to the £30,000 limit.

So to get a rough idea of how much tax to pay, perform the following calculation:

[(Value of car + £50,000) - £30,000] x your rate of tax (i.e. 20% or 40%)

There are rules with regards to what is exempt to tax and falls within the £30,000 threshold. This calculation will provide you with a ballpark figure for your tax position. But if you have real concerns and would like a more accurate figure, then it would be advisable to discuss the tax position with your employer or you local TaxAssist Accountant.

 

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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