How to process redundancy pay

Article ID

11370

Article Name

How to process redundancy pay

Created Date

3rd March 2020

Product

IRIS PAYE-Master

Problem

I need to pay redundancy for an employee. How can I process this in the system?

For redundancy pay legislation information check www.gov.uk here.

Resolution

Redundancy payments under £30,000 are normally tax and NI free. Any amounts above this figure will normally be subject to Tax deductions only – if the payment is over £30,000 you will need to set up two additions.

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Please Note: From tax year 20/21 you will need to deduct tax AND calculate employers class 1 NI contributions for redundancy payments over £30,000. This can be handled in PAYE-Master using a new payment option that is available once you have moved into the 20/21 tax year. See below for details.

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To set up the First £30,000 (Tax & NI free)

• Go to “Company” >  “Details” > “Additions/Deductions“
• Find the first “Unused” in the list.
• Delete the word unused and type in what they want to show on payslip e.g. Redundancy
• Set as Payment (Add)
• Remove ticks in Tax and NI

• “Save” and “close“

• Go to variations

• Select the “Redundancy” pay code

• Enter the figure:

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To set up amount over £30,000 (Tax deduction only)

• Go to “Company” >  “Details” > “Additions/Deductions“
• Find the first “Unused” in the list.
• Delete the word unused and type in what they want to show on payslip e.g. Redun Taxable
• Set as Payment (Add)
• Leave tick in Tax but REMOVE from NI:

• “Save” and “close“
• Go to variations
• Select the “Redundancy” pay code and enter the first £30,000
• Select the “Redun Taxable” pay code
• Enter the remaining value or any redundancy over the £30,000 level:

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Changes from 2020/21 Tax Year

Once you move into the 2020/21 tax year you will need to calculate tax and employers class 1A NI contribution on redundancy pay over £30,000

In order to do this you will need to create a new payment code

• Go to “Company” >  “Details” > “Additions/Deductions“
• Find the first “Unused” in the list.
• Delete the word unused and type in what they want to show on payslip e.g. Redundancy
• Set as Payment (Add)
• Untick Tax & NI
• Tick “T’mn”

When you use this payment code you no longer need to split redundancy payment over/under £30,000 as detailed above.

This new payment type will automatically be tax/NI free for values under £30,000. If you use the code with a value over £30,000 tax will be deducted and employers class 1 NIC will be calculated correctly.

Please note: The option “T’mn” will only be available once you have moved into the 20/21 tax year.

Please Note: There is still no employees NI contribution on redundancy payments over £30,000.

For further details on redundancy pay legislation check www.gov.uk here