Made Redundant Just Before Christmas? The Tax Timing That Actually Matters
Which tax year a redundancy payment lands in can change how much tax you pay on it. What to check if your redundancy date falls in December, and why the £30,000 exemption doesn't cover everything.
Why timing can matter at all
Income Tax is calculated on total taxable income within a tax year (6 April to 5 April). A redundancy payment made in December sits in the same tax year as salary already earned since the previous April; a payment delayed into the new tax year (after 5 April) is assessed against a fresh year's income instead. Where the taxable part of the payment (above £30,000) is large enough to push income into a higher tax band, which tax year it lands in can change the total tax due — sometimes significantly.
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Calculate your redundancy paymentWhat's actually tax-free and what isn't
| Element | Tax treatment |
|---|---|
| Statutory redundancy pay | Tax-free, within the overall £30,000 exemption |
| Non-contractual ex-gratia payment | Tax-free, within the overall £30,000 exemption |
| Amount above £30,000 (of the above) | Taxed as income |
| Unpaid notice (PILON) | Taxed as normal earnings — not covered by the exemption |
| Outstanding holiday pay | Taxed as normal earnings |
| Bonus owed | Taxed as normal earnings |
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Check the tax impact on your total annual incomeWhy this needs individual checking, not a rule of thumb
Whether being paid in December versus after 5 April is better depends entirely on: how much of the tax-free £30,000 has already been used, how much other income falls in each of the two tax years, and whether the taxable excess pushes income across a tax band boundary in one year but not the other. Because these numbers are different for every individual situation, this is one area where running the actual figures — or getting advice — matters more than a general rule.
Sources
- gov.uk: Redundancy: your rights
- gov.uk: Tax on termination payments
Frequently asked questions
Is redundancy pay tax-free up to £30,000?
The genuinely compensatory part of a redundancy payment (statutory redundancy pay and most non-contractual ex-gratia payments) is tax-free up to £30,000. Anything above £30,000 is taxed as income. Contractual elements like unpaid notice pay, holiday pay owed, or a bonus are taxed as normal earnings regardless of the £30,000 exemption.
Why does the timing of a redundancy payment around Christmas matter for tax?
If a redundancy payment (or the taxable part of it) is paid in one tax year rather than the next — for example, in March rather than April — it is taxed alongside whatever else you earned in that tax year. Depending on your total income for each year, this can push some of the taxable excess into a higher tax band in one year rather than spreading it, or vice versa.
Can I ask my employer to delay a redundancy payment into the new tax year?
Sometimes, but it depends entirely on your employer's policies and the specifics of your situation — it isn't a right, and delaying pay you're entitled to isn't always in your interest either. It's worth discussing with a tax adviser or your employer's HR team if the payment is large and close to the tax year boundary (5 April), rather than assuming either timing is automatically better.
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