Tax issues on redundancy and notice payment: ask the expert

I have worked for my company for 3 years and have been on maternity leave for 5 months. I have just been told that I am being made redundant and that my remaining maternity leave will be paid to me along with my redundancy pay and months notice. The company have said that as that gross amount comes to just over £6,000 I will be subject to the higher tax band. Is this correct as you don’t pay tax on redundancy pay which for me is 3 weeks pay at £1,200? They have said this will work itself out, but am assuming that wouldn’t be until the next tax year.

You are right on all counts. Your payment in lieu of notice is taxable. Your redundancy is not taxable under £30,000.Any SMP you receive is also taxable. However, if you go back to work then your tax refund will come back at that point. If you do not, then you will have to wait until April 2013 to get the overpayment.

When you return to work, your new employer will ask you for your P45. They will contact the tax office and request a new tax code for you. This should automatically trigger your tax refund. Obviously, the above applies if you go back to work before the end of the tax year. If you do not, you would apply to HMRC yourself.


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