A redundancy payment is effectively compensation for loss of work and the first £30,000 is tax free. Irrespective of whether its statutory or contractual redundancy pay, no national insurance contributions are deducted either on the first £30,000.
However, your employer will deduct tax and National Insurance contributions from any wages, bonus or holiday pay they owe you. If you have been given any additional non cash benefits, such as a company car or laptop, this is usually included in your £30,000 and tax exemption calculated accordingly.
Are you entitled to statutory redundancy pay?
You’ll normally be entitled to statutory redundancy pay if you’re an employee and you have
been working for your current employer for 2 years or more.
a) 0.5 week’s pay for each full year worked when you’re under 22
b) 1 week’s pay for each full year worked when you’re between 22 and 41
c) 1.5 week’s pay for each full year worked when you’re 41 or older
The length of service is capped at 20 years and weekly pay is capped at £464. So the maximum amount of statutory redundancy pay is £13,920.
Have you paid the right amount of tax?
There's a good chance that you might be due a tax rebate if you are made redundant half-way through the year, as you may not have used all your personal allowance. Never assume your employer has got the calculations right - the tax deducted could be too much or too little. It is up to you to write to your tax office explaining your situation and ask for a refund.