With the economy in freefall, potential redundancy payments are becoming a more topical issue for some of my executive coaching clients. Therefore, I thought it might be useful to just explain your rights if you find yourself needing this advice. If you have held your job for less than 2 years, you are entitled to payment for your agreed notice period (usually a week to three month depending on the job). But if you have been there longer than 2 years, you are entitled to statutory redundancy pay of a week's pay (up to £330 – which is not very helpful) for every year worked there for a maximum of 20 years. If you are over 41, this increases up to $495. The first £30,000 of any payout is tax-deductable, unless ….
the sum is stipulated in your contract – in which case it is all taxable. The tax free-limit applies only to ex-gratia payments made to compensate you for the loss of your job. Unpaid wages, notice-period payments and bonuses are still taxed and if you get something in exchange for the payment, like a company car, it is converted to a cash value and therefore part of your $30,000 limit. Additionally, ask for your redundancy payment to be made after your recieve your P45, so it is not added to your income potentially pushing you into the higher tax bracket.