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Sam
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Category: Tax
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In closing my business I am making my employees redundant.

Customer Question

In closing my business I am making my employees redundant. Typically each one is getting about £11,000 statutory redundancy pay and £25000 compensation payment, compensation for the termination of employment. Initially we were told that statutory redundancy pay was tax free, and the compensation payment, because it itself was under £30,000, was also tax free. Now we are being told that in fac the two are aggregated, so in this case the total is £36000, and tax must be paid on the £6000. Which 'professional' is correct?
Submitted: 10 months ago.
Category: Tax
Expert:  Sam replied 10 months ago.
Hi Thanks for your question - I am Sam and I am one of the UK tax experts here on Just Answer (ex HMRC and now run my own accountancy business) The latter is correct - the lump sums have to be added together to be considered under one £30,000 tax free allowance.So each employee will be treated as being paid £36,000 and it £6000 at least will be liable to tax. But the £25000 compensation payment - may also be liable fully to tax - with just the statutory redundancy being a true tax free element. So please advise (if you wish me to clarify its validity) under what legislation you have determined that £25000 (under the title of compensation) can be considered as a tax free payment? Thanks Sam

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