Redundancy pay and National Insurance contributions

Payment	Do I pay tax?	Do I pay National Insurance?
Redundancy payment	Only on the amount over £30,000	No
Unpaid wages	Yes	Yes
Bonus payment	Yes	Yes
Occupational pension	Yes	No

Your employer will deduct tax and National Insurance Contributions using the guidance we provide. He or she should also give you a form P45 Details of employee leaving work when you leave.

If your employer pays your redundancy pay before you leave the employment, form
P45 will reflect the pay and tax deducted through Pay As You Earn (PAYE).

If you are paid after you have left the employment and you have already been given
form P45, your employer should not give you another. Instead, your employer should
give you documentary confirmation of the payment (for example a letter, payslip or
other printed document) stating:

• the date of the payment
• the amount of payment
• the amount of tax deducted
• confirmation that the payment is a post-leaving payment.

Redundancy pay and tax

As of October 2011, redundancy pay under £30,000 in the UK is not taxable.

More information on whether elements of the payment, such as pay in lieu of notice (PILON), is taxable is available from HM Revenue and Customs.

Pay in lieu of notice is money paid to you by your employer as an alternative to being given your full notice.

Pay instead of notice

Sometimes it is in both your interests not to work out the rest of your notice period.  You can agree with your employer that you can leave as soon as you are given notice in return for lay in lieu of notice.  This is often called "gardening leave".

You should still receive your full entitlements as if you were working out your notice.

This link takes you to the HM Customs web page, explaining the tax implications

Tax on pay in lieu of notice

Note that if an employer dismisses you without payment, then the employer is in breach of contract and you can sue for the wages that you would have received if notice had been given. 

Some employers are prepared to pay this sum gross, rather than net, but entitlement depends on the contract of employment.