by Daniel Jones
Being made redundant is often a huge blow to workers, but to subsequently be taxed more than is fair on any potential payout will only serve to deepen one's dismay.
This is why the Low Incomes Tax Reform Group (LITRG) has urged those who have received a redundancy payout in recent years to make sure that they have paid the right amount of tax. In some cases, no tax at all may have been due, so it's important for people to check that they were not charged.
According to the organisation, when an employer becomes insolvent, payouts from the Redundancy Payments Office will often have tax deducted when it shouldn't have been. Because the office doesn't operate a tax code, it takes the basic rate from lump sums.
What it fails to consider is the fact that the first £30,000 of any redundancy payout is tax-free, so people should always be able to enjoy this sum without handing any over to HM Revenue & Customs (HMRC).
LITRG has urged everyone who thinks they may have been wrongly taxed on redundancy money to get in touch with HMRC as soon as possible to work out the specific details of their case.
Anthony Thomas, chairman of LITRG, said that anyone who is made redundant and told that their employer cannot or will not offer a payout should get in touch with the RPO, as it may be able to secure a protective award on their behalf.
"The tax rules on redundancy packages are complex, but redundancy payments are generally tax free up to the limit of £30,000. This means that if you receive a redundancy payment, it is likely to be exempt from tax. The package you receive, however, may also include elements that are taxable and liable to National Insurance contributions, such as unpaid salary or holiday pay," Mr Thomas explained.
People should typically be eligible for redundancy money if they have worked for their employer for at least two years.
Published on: November 8, 2013