Do you get taxed extra on lump sum redundancy payouts?

My colleague and I are both pregnant and are having to take voluntary redundancy in February after the 90 days consultation due to the fact that we will not be guaranteed part-time jobs when we return after our maternity. So, we’ve just had our meeting with HR to “finalise” things and they were hopeless. We are entitled to our redundancy package and a month in lieu, this is all fine, no dispute there. The company have agreed that due to the fact we are in the qualifing period they will  have to pay us SMP BUT…. they want to pay it in a lump sum in February. Now our issue is that this will be heavily taxed and as it will be in this financial year, it will be calculated with this year’s earnings and we will not be able to claim the tax back. We spoke to the statutory dispute line who said paying SMP in a lump sum is frowned upon due to the tax implications and that the tax office did not like this to happen for  exactly the reasons I have stated.

Also the company will pay in a lump sum and then what if we want or even need to go back to a part-time job after 6 months. As first-time mums we don’t know how we will feel….
The company is saying that by paying us SMP monthly would mean that we are still employed  by the company until our SMP runs out, therefore would not pay us our redundancy payment until the SMP finishes, ie December 2010 and they say we would then have accrued more  leave and technically more redundancy pay…ARGH.!!!
All we would like is for our redundancy to be paid in February and either our SMP monthly  or paid in a lump sum in the new tax year, Why should we pay the tax when we probably won’t get it back??

 

I understand that you have volunteered for redundancy and your options are, in the main, as the company has set out to you:

1. If your employment terminates in February, on this date you will then receive payment of your statutory redundancy payment, your pay in lieu of notice and a lump sum in respect of your statutory maternity pay; or

2. If you receive statutory maternity pay on a monthly basis until your employment terminates next December, then you will remain an employee during this time. The consequence of this is that the company does not have to pay your statutory redundancy payment until your employment then terminates i.e. potentially December 2010. However, whilst you remain an employee, you then continue to accrue annual leave (and so would be entitled to accrued holiday pay on the termination of your employment) and longer service is likely to mean that you will then receive a higher statutory redundancy payment.

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Another option for you to discuss with your employer is whether your employer would be prepared to agree that your employment terminates at the beginning of the next tax year, i.e. in April 2010. You would receive your monthly statutory maternity pay up until this point and in April 2010 your employment could then be terminated and you would then receive the balance of your statutory maternity pay as a lump sum, plus your statutory redundancy payment and pay in lieu of notice, plus accrued holidays to this point.

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Comments [31]

  • Amanda Garratt says:

    I am 32 weeks pregnant and have been given my notice of redundancy and finish in 21st December. I have been told I am getting my SMP in one lump sum however my SMP crosses over 2 tax years but I am going to be taxed all in 2017-18 on the full amount instead of some not being taxed due to getting my new personal allowance. Is there anything I can do to stop this? Should I speak to HMRC? I will be out of pocket by nearly £1200 in tax and NI! Thanks in advance.

    • Mandy Garner

      Mandy Garner says:

      It is fairly common for SMP to be paid in a lump sum on redundancy. If you go back to work after your maternity leave then your tax refund will come back at that point. If not, you should claim your overpayment direct from HMRC – see http://www.hmrc.gov.uk/incometax/overpaid-thro-job.htm. Another solution would be to try and negotiate a delayed redundancy from your employer if your redundancy comes through after your maternity leave starts so that you were kept on payroll during your maternity leave, but they may not want to do this.

  • Diana says:

    I’ve been fired at work, but I am entitle of SMP,so they gonna pay me on the 31th of march 2016 on lump sum,I calculate the taxes and its just crazy,average of £190 monthly…so Im gonna get around £400 a month…
    My question is,when do I ask for this taxes that Im gonna pay extra,before 6th april 2016 or the next year??
    Should I ask them for my P60 or P45??because they are not giving me anything that says where that money come from
    And if I start working before my SMP finish,who should I inform?? Thank u!!

  • M says:

    Hi I am due 3rd April and am taking voluntary redundancy, I am working 5 weeks of my 10 weeks notice period and have agreed to leave on 4th March. I have been notified that my redundancy payment and enhanced maternity pay will be paid in a lump sum at the end of March. This means I will be taxed on my maternity pay in 2015/16 tax year even though it’s b covering 2016/17 tax year. Is this right? Have I the right to ask my company to pay me in April 16 pay check instead or is there an easy way to claim it back if I keep the arrangement as being paid in March 16? Thanks

  • Jessica says:

    Hello

    I have recently been made redundant from my job as I am on maternity leave. My company are paying me in full alongside other things I am entitled to. Would I be taxed on that as it will be a large sum and if so can I claim it back? My maternity pay finishes in November so it would be being paid a month in advance

  • laura says:

    I am likely to be made redundant whilst on maternity leave. I understand I am entitled to the full SMP (I do not get any enhanced maternity pay). Will I also be entitled to statutory redundancy pay and contractual notice pay?

  • Anon says:

    I am currently on maternity leave but have received a letter from the college I work at saying I am at risk of loosing my job. I’ve taught there just over 2 years and qualified for OMP. My understanding of OMP is I have to return to work for a set amount of time when my leave ends otherwise I will have to pay it all back. But I am interested in voluntary redundancy. Would voluntary redundancy be an option or would the OMP stop this? And if I did qualify for it would I have to pay OMP back? What tax implications would this have? Sorry for all the questions, just can’t get any answers elsewhere. Thanks

  • Anonymous says:

    Hi, i am currently employed but contract ends on 31st March 2015. The project that employs me is ceasing at the 31st March 2015. I am 39 weeks pregnant and have started my maternity leave last Monday. The company have just told me that they will pay my maternity in a lump sum, this being this month, meaning my full personal allowances has been used and i will now be taxed at 40% plus i will be paying NI and student loan deductions. If i was being paying monthly i would not have to pay tax, NI or student loans on any of my maternity leave as this would be payable From April 15 onwards being a new tax year ans i will have my full personal allowance to offset it. Any advice would be appreciated as having no work i was depending on my maternity allowance. Thanks in advance

    Editor: It is usual for SMP to be paid in a lump sum on redundancy. If you go back to work after your maternity leave then your tax refund will come back at that point. If not, you should claim your overpayment direct from HMRC – see http://www.hmrc.gov.uk/incometax/overpaid-thro-job.htm

  • Anonymous says:

    Hi I am currently on maternity leave and my smp finishes on 27th July, I have opted for voluntary redundancy and thus takes effect on 17th April when they will pay me an enhanced redundancy package and notice in lieu, what will happen to the remainder of my smp? Does it get paid or because I've taken voluntary redundancy does it finish? Thanks in advance 🙂

    Editor: You should be paid it in a lump sum with your redundancy money.

  • Anonymous says:

    Hi I am taking a Voluntary Redundancy package from work from 01.07.2015. Planning on going on Maternity Leave from 26.06.2015. I am aware I will be entitled to SMP as a lump sum with my Redundancy Payment but am I entitled to any Annual Leave entitlement that I would have accrued whilst being on SMP had I remained in service as a lump sum upon taking Voluntary Redundancy?
    Thanks

    Editor: You would only get any accrued leave owed up to the date of your redundancy.

  • Anonymous says:

    Hi
    My SMP has finished and I will lose my working tax credit now as I am not due back at work till the end of March. My partner only works 6 hours. I am thinking of taking an extra year out but want to know if I am entitled to my annual leave. Also if I take it and get paid and apply for working tax credit again will I have to pay tax on that sum of money and will it affect my claim?
    Thanks

    Editor: You continue to accrue annual leave in the normal way on maternity leave so you would be entitled to any leave up until the point of your resignation. I am not sure what you mean about tax. You would have to pay tax on any salary paid if you earned over the personal tax allowance level in any one year, which would include SMP, which is taxable. With regard to tax credits, you would need to contact http://www.turn2us.org.uk

  • Anonymous says:

    Hi, I might take a voluntary redundancy after coming back from my second maternity leave but not sure if in my redundancy pay the company has to count the two years maternity leave I took or if they pay me just for the years I've been working in the office?

    Editor: It counts from your date of employment so maternity leave is covered.

  • Anonymous says:

    Hi, ive been on maternity leave since september and have just been told our store is closing down and u will be made redundant, am I entitled to tge resf of my smp? I would gave been paid until may.

    Editor: You will continue to get SMP and may get the remaining amount as a lump sum with any redundancy payment.

  • Anonymous says:

    Hi. I received SMP in a lump sum ( with my redundancy pay) in June when I was 26 weeks pregnant. Will I have to pay it back if I return to work sooner?
    When can I return to work without having to pay back the SMP? Is it 39 weeks from June or when my baby was born? How do HMRC know as it wasn't on my p45?
    Thanks

    Editor: You would have to pay it back if you return to work sooner than the 39 weeks, dating from when you asked for your maternity leave to start. HMRC will know as you pay tax and NI on SMP.

  • Anonymous says:

    Hi,

    I am currently 16 weeks pregnant. I am currently in my consultation period for redundancy, however the notice starts on 14th Jan 2015. At this point, my notice period starts of 7 weeks. My baby is due on 7th May 2015. Is there anything to stop me requesting my SMP start on 3rd March (Day before my contract is due to end?) Or will this mean that I remain employed, and my employer may not want that.

    Editor: They usually pay SMP as a lump sum with any redundancy money due when you leave.

  • Anonymous says:

    Hi hope you can help.

    I am 10 weeks pregnant and have been notified that I will be made redundant on 31/3/2015. My due date is 6/6/2015. I have worked for the company for almost 9yrs on a full time basis.

    My question is am I entitled to statutory maternity pay?
    How will the maternity be paid?

    Many thanks

    Editor: To qualify for SMP you need to have worked for your employer from before you got pregnant until at least the end of the 26th week of your pregnancy. If this is the case, you will still get SMP even if you are made redundant after this. SMP will usually be paid in a lump sum when you are made redundant.  If you are not eligible for SMP, you can claim Maternity Allowance through your JobCentre Plus – see https://www.gov.uk/maternity-allowance/overview.

  • Anonymous says:

    Hi there

    I'm currently 6 months into my maternity leave and have been told that my dept is being org reviewed.

    They have changed my job title but my salary remains the same so technically I'm not at risk, although they have said I will need to apply for the role.

    I do not want to return to work but as I recieved 18 weeks enhanced pay at 50% I would have to repay that if I resigned, this was my only reason to go back. I would have returned for 3 months then resigned in order to avoid the repayment.

    Having learnt that we have the option of voluntary redundancy I would like to apply for it but HR haven't given me a firm answer whether i took the redundancy if I would still have to repay the 50% element.

    All they have said is it is unlikely. I'm on SMP at the moment which will be finishing in January 2014.

    Essentially I don't want to return and don't want to repay them anything; can you advise if they can make me repay the money if I take the voluntary that they are offering and whether there are circumstances in which they can refuse to give me voluntary redundancy?

    Thanks in advance

    Editor: Our HR expert Sandra Beale says: Taking voluntary redundancy is in fact resigning so I am of the opinion she would have to pay it back. She has been told she has a job although she has to apply for it. If she does not get it and the company make her redundant then presumably she would not need to pay it back. It would depend on the contract wording.

  • Anonymous says:

    Hello,

    I am being made redundant on the 30/09/2014. I am 22 weeks pregnant. I will be working during the qualifying week which is the 21/09/2014.

    My employers wants to pay SMP as a lump sum. Is this something that has to be mutually agree or is it something the employer can just do.

    I will be working(self employed) before my baby is due, do i have to pay any smp back?
    can I claim back my tax for the lump sum smp payment?

    Editor: Your employer can choose to pay your SMP in a lump sum [see https://www.workingmums.co.uk/advice-and-support/career-advice/399271/maternity-and-redundancy-your-rights.thtml], but you can claim the tax back – either it will come back to you when you go back to work as a tax refund or you can claim overpayment direct from HMRC – see  http://www.hmrc.gov.uk/incometax/overpaid-thro-job.htm. You would not have to pay back SMP as you can still get SMP while doing self employed work.

  • Anonymous says:

    Hi, I am 14 weeks pregnant and have just learnt of imminent redundancies in my company. I haven't yet informed them of my pregnancy as I was waiting for various medical test results first. I am unsure whether I should tell my employer now and risk them making sure they terminate my contract prior to my qualifying week for SMP or if I should try to hide it! Is there any advantage in being upfront? They are contractually able to pay me my notice in lieu anyway to avoid paying SMP so I am not sure I can get any of this to work in my favour to try and reach my qualifying week and still be under contract. Do you have any advice?

    Editor: If you are waiting for various medical test results first I would continue to do so. There is no obligation to tell them yet and if you would not have done so prior to the news about redundancies the only reason for telling them earlier would be for them to take this into consideration for the redundancies, which they should not legally do.

  • Anonymous says:

    Hi, am 18 weeks and due in Dec. My employer has selected me for redundancy as she says she cannot find an alternative vacancy within the company due to the restructuring. I've worked for her for 2 year 2 months. What will I be entitled to?

    Editor: In terms of redundancy pay – see https://www.gov.uk/calculate-your-redundancy-pay. In terms of maternity pay, etc, it would depend on when you finish work. If you finish before the 26th week of your pregnancy you would not be entitled to SMP. However, you may be entitled to Maternity Allowance if you have worked for 26 weeks in the 66 weeks leading up to your baby's due date and have earned at least £30 a week in any 13 week period in those 66 weeks. This can be claimed via your local JobCentre Plus.

  • Anonymous says:

    hi im 20 weeks pregnant and have worked for my employer for 15 years. we have just been made aware that we will be made redundant on the 17 october and my baby is due on the 14 november what am i entitled to

    Editor: You should be entitled to SMP if you meet the eligibility criteria and to redundancy pay – see https://www.gov.uk/calculate-your-redundancy-pay. You can check http://www.turn2us.org.uk to see if there are any other benefits you might be entitled to, depending on your circumstances.

  • Anonymous says:

    Wonder if you can help me. I`m 25 weeks pregnant and at the end of July I`m being made redundant they are paying me one months wages and SMP in a lump sum how bad is this going to be on the tax and national front.

    Any one please help as I`m worried that so much tax will be deducted.

    Editor: Payment in lieu of notice is taxable, but redundancy is not taxable under a certain amount. Any SMP is also taxable. However, if you go back to work your tax refund will come back at that point. If not, you should claim your overpayment direct from HMRC – see http://www.hmrc.gov.uk/incometax/overpaid-thro-job.htm

     

  • Anonymous says:

    Hi, my enployer has agreed to terminate my employment at the end of the month. To pay me 2 months net salary in lieu of notice & my smp in a lump sum. My main concern is that i will get taxed heavily on this, which i dont want to be, as i wouldnt be if i received payments monthly. Will i be heavily taxed? What can i do about it? Thanks

    Editor: You will be taxed on it, but you can reclaim any overpayment based on your earnings over the year. You'll need to complete a tax repayment claim form (also called an R40) which, along with guidance notes, can be obtained from HMRC’s website at http://www.hmrc.gov.uk.

  • Anonymous says:

    I am in collective consultation at the moment – I am 13 weeks away from returning to work, and it is 11 weeks until my OML ends. There are no suitable vacancies that I feel I could be offered so if I take or am selected for redundancy, am I entitled to statutory redundant pay, statutory notice pay and the remainder of my SMP, plus any holidays I have accrued? What happens to the enhanced pay I received?

    Editor: You will accrue holidays, redundancy pay and notice pay as usual and you will be entitled to all your SMP. You will need to check your maternity policy as regards enhanced pay.

  • Anonymous says:

    Hi, my employer is offering voluntary redundancy with a proposed finish date of 30/09/2014 of which I've expressed an interest but this is as far as it's got at the moment. I am currently 15 weeks pregnant with my due date being 08/11/2014 so would be looking to finish around 30/09/2014 anyway to start maternity leave. I've worked for them for over 11 years so providing I'm still there by the qualifying week (15 weeks before my due date) will I qualify for SMP as well as my redundancy pay as it would be taken voluntary?

    Editor: As long as you are still there by the 26th week of your pregnancy you will qualify for SMP.

  • Anonymous says:

    Hi – my company restructuring due to losing a big contract. I've had a letter saying my job is at risk of redundancy (I'm on maternity leave – 2 week old baby). I have to phone into a telephone consultation tomorrow. Quick questions:-
    a) Stat Maternity Pay: am I right in thinking it is their responsibilty to pay this to me on top of my redundancy payment? or do I have this paid by HMRC?
    b) Holiday entitlement: I have six days accrued already; but whilst on maternity leave, am I entitled to payment in lieu of any annual leave which would have been accrued whilst I was off for the full SMP period?

    Editor: You will continue to get SMP if you are made redundant and you would be entitled to payment for any holiday accrued during maternity leave if you are made redundant.

  • Anonymous says:

    Hi
    I was made redundant on 30th April 2014, due to insolvency I have completed and returned my form and evidence to the statutory disputes service how long will it take to receive my maternity pay and how will it be paid. I also need to claim for pay in lieu of notice as only given part of this but will I still be owed this at my full salary rate or SMP rate, he company paid my SMP until end of April. Any advice would be great thanks.

    Editor: Liability for Statutory Maternity Pay will normally pass to the Secretary of State in cases where the employer is insolvent. For more information, call the Redundancy Payment Services helpline on 0845 145 0004. Payment in lieu should be on your normal rate.

  • Anonymous says:

    Hi

    I am on garden leave and will start my mat leave on 15th June 2014 and will be made redundant on 17th June 2014.

    My question is my work will pay me my smp as a lump sum but was wondering the tax implications if any if I try and look for work in September 2014?

    Thanks

    Editor: You would lose your right to SMP from the week you start work with a new employer so would be liable to pay the remaining pro-rata proportion of SMP back.

  • Anonymous says:

    I have taken voluntary redundancy whilst on mat leave and originally I was going back to my job after the 39 weeks which would be June 2014. My employer has paid my statutory pay but it looks like it's enough to cover this tax year. Am I entitled to the rest of it and how do I work this out/claim it?

    Editor: Your SMP should continue to be paid or be paid in a lump sum when you leave.

  • Anonymous says:

    I have got a question regarding SMP: my wife was made redundant from her job on the 28th of February, and was on SMP since the beginning of December. Once she was made redundant the employer decided to pay her SMP as a lump sum. As this was treated as income it was subject to tax and NIs. Having called HMRC to try and get the tax back, it has been very difficult as the information available is scarce. Is there any advice on how to deal with this? Her redundancy included 1 month's salary (although this was not classed as redundancy pay) + accrued holidays + SMP. Nowhere on the P45 is it made clear that a portion of payment was due to SMP. Should this be the case…..please help…..mfairest@hotmail.com

    Editor: Payment in lieu of notice is taxable, but redundancy is not taxable under £30,000. Any SMP is also taxable. However, if your wife goes back to work then her tax refund will come back at that point. If not, she should claim her overpayment direct from HMRC – see http://www.hmrc.gov.uk/incometax/overpaid-thro-job.htm. 

     

  • Anonymous says:

    I so wish I had found this website sooner, i have just been to sign my compromise agreement today and did not know where I stood with me being on maternity leave. I would have rather been paid my maternity monthly and not been taxed on it and accrued another full year’s service, but trying to get advice from anywhere when you have been made redundant is like hitting a brick wall - no one seems to want to listen or give you advice.


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