Redundancy pay and Investments - some FAQs covered.

If I’m made redundant, what amount is tax free?

Up to £30,000 of redundancy pay is tax free. Any non-cash benefits that form part of your redundancy package, such as a company car or computer, will be given a cash value and added to your redundancy pay for tax purposes. This might then take your overall income over the £30,000 threshold.

What will I be taxed on?

Any redundancy pay over £30,000. When you get it, your employer will usually have deducted the tax but your may want to ask a tax expert to check your employer has calculated it correctly.

What about holiday pay?

Holiday pay is treated in the same way as wages, so, tax and National Insurance contributions will be deducted as usual from these payments before you receive them.

How are wages owing and bonuses calculated in redundancy pay?

Unpaid wages, bonus or overtime will have tax and NI contributions deducted, even if you receive the amounts after your employment has ended.

Where employment involves regular commission or bonuses then these can be taken into account when calculating redundancy pay using the average wage for the previous 12 weeks. These payments would then qualify for the £30,000 tax free exemption. Where these payments are not considered part of the employee’s normal weekly wage then these payments will not qualify.

If I’m made redundant, do I pay Tax if I’m paid in lieu of notice?

Tax on Payments In Lieu of Notice (PILON) - this is where, although you might be expected to carry on working during your notice period, your employer has decided to allow you to leave early, or sometime immediately after being made redundant.

Under these circumstances, you might receive Payment In Lieu of Notice (PILON). This is effectively compensation for ending your contract early.

All contractual and non-contractual PILON payments are subject to income tax and National Insurance deductions. It’s up to your employer to identify what you would have earned in basic pay if you had worked through your notice period.

All other non-contractual payments are included in the £30,000 tax free redundancy pay limit.

How should I invest my redundancy pay?

Without knowing more about you and your circumstances, that’s almost impossible to answer accurately. Your best bet is to call us and one of our advisers will go through all your options with you.

What’s the best thing to do with a lump sum redundancy payment?

There’s obviously a lot of ways you can save or invest a lump sum payment, and it’s going to depend entirely on what you need right now in your life - and what could come up in the near future for you. For sound, impartial, whole of market advice it’s always best to talk to the experts - and that’s where we come in.

Can I put my redundancy payment into a pension?

The short answer is yes you can - but to know if that’s absolutely the right step for you personally to take, you should seek advice from the experts. Until a complete assessment of your circumstances has been conducted, there’s just no way of knowing for sure what’s the exact right path for you to follow.

If I’m made redundant could I get a Tax rebate?

How much tax you pay is calculated on a yearly basis. So, if you’ve stopped working part way through the tax year, you might have paid too much income tax.

Never assume your employer has got the calculations right. The tax deducted could be too much or too little.

It’s up to you to notify HM Revenue & Customs of your change in circumstances. You might be asked to complete a Self Assessment tax return at the end of the tax year to pay any additional tax due.

Can I put my redundancy pay into an ISA?

If the redundancy payment is a significant sum, you do need to talk with an independent financial adviser for recommendations on how best to invest it. What constitutes a good investment from your perspective depends to a great extent on your own current and likely future circumstances, your own attitude towards risk as well as the prevailing conditions in the economy. It is therefore difficult to offer general recommendations.

What can be said is that ISAs (Independent Savings Account) are excellent tax-efficient savings instruments, available in a variety of forms to suit your requirements. You are limited in how much you can put into an ISA in any one year, however, so if your redundancy payment is a large one, you will need to look beyond ISAs, perhaps at shares or property - again, an independent financial adviser will give you advice best suited to you.

Can I use my redundancy payment to pay off my mortgage?

Yes, but you should first take advice to make sure that’s the best thing for you to do with your money. You might fall foul of early repayment penalties or similar, and so you should seek advice before deciding to pay off part or all of your mortgage.

Can I use my redundancy payment to buy stocks and shares?

The short answer is yes, although this may not be your best way of investing your lump sum redundancy payment. It’s much better to see us or speak with us in person so we can offer you the best advice to suit your individual needs.

Should I use my redundancy pay to clear outstanding debts?

Without knowing your full circumstances, it’s difficult to be certain what the best route would be for you to take. For that reason, we always advise talking to us directly so we can be certain that you’re getting advice that’s tailored and accurate for you.

Can I come to see you for advice on my redundancy pay?

Of course - we’re always happy to meet new and potential new clients, you can ask for a callback and we’ll be straight back in touch with you to see how we can best help you.

Start planning your future. Speak to us today.

Contact Us

Seventy Financial Planning
The Apple Store, Haggs Farm,
Haggs Road, Follifoot, Harrogate,
HG3 1EQ

01423 611004

[email protected]

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