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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.


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.


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
company additions deductions list
  • Save” and “close

  • Go to variations

  • Select the “Redundancy” pay code

  • Enter the figure:

Redundancy pay variations

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:
company details addition deductions list
  • 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:
pay variations

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

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