Reader Question: How much tax will I pay on my redundancy payment?

Get an answer to your financial question online

 Reader Question:

Hi, I am being made redundant from the 30/04/2012 my redundancy payment totals £80,314 of course £30,000 is tax free of the remaining £50,314 how is the tax worked out and how much will I get?




My response:

As you state the first £30,000 will be free from taxation, while the remaining £50,314 will be liable to income tax at your marginal rate under PAYE, but not National Insurance Contributions.

Obviously your overall income tax bill for the 2012/13 tax year will depend on your other earnings throughout the year.

But assuming you didn't earn anything else for the rest of the tax year, and you got your full personal income tax allowance, your overall tax bill would likely be around £10,000. (i.e. £6,874 at the 20% income tax rate and £3,135 at the 40% income tax rate).

A fuller explanation of how redundancy payments are taxed can be found here.

But the amount you actually receive when you leave will depend on how you receive it. If you are paid your redundancy when your p45 is issued then your payment will be taxed under PAYE, presumably correctly based on your earnings for the tax year to date.

However, if it is paid after you receive your P45 then it is likely that your redundancy will be taxed presuming the to be earnings to relate to one month's pay (this is a result of rules changes that came into effect last year). The upshot would be that you would pay more tax initially which you would then need to reclaim.

Obviously any overpayment tax (via either route) can be rectified but you might want to talk to your payroll department to ensure your tax code is correct and avoid any unnecessary overpayments.

Finally I suggest that you download this excellent FREE guide on how to minimise your tax bill*.


I hope that helps.


The material in any email, the Money to the Masses website, associated pages / channels / accounts and any other correspondence are for general information only and do not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation. See full Terms & Conditions and Privacy Policy.

Image: Danilo Rizzuti /

FREE e-book: 39 simple ways to cut your tax bill

Tax book version 3

Download your FREE copy here

This post was tagged under:

About Damien

Damien is one of the most widely quoted money and investment experts in the national press and has made numerous radio & TV appearances. He created while working in the City when he became disillusioned with the way the public were left to fend for themselves because they could not afford financial advice.In 2014, after publishing his first book '30 Day Money Plan - Fix your finances in just 5 minutes a day' Damien quit his day job to focus his efforts on MoneytotheMasses.comIn 2015 he launched '80-20 Investor' which empowers DIY investors to invest & run their own money.

Thoughts on "Reader Question: How much tax will I pay on my redundancy payment?"

  1. Cherry Cornforth October 30, 2012 at 5:05 pm

    Excellent article really helpful the best advice I have found and I’ve been looking for 2 hours. Thank you