How to process redundancy pay
- Article ID
- 11370
- Article Name
- How to process redundancy pay
- Created Date
- 5th August 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
-
Changes from 2020/21 Tax Year
Redundancy payments under £30,000 are normally tax and NI free. Any amounts above this figure will normally be subject to Tax deductions & class 1A NI contributions.
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.
This 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.
Advice prior to 20/21 Tax Year
The following advice applies to redundancy payments made before the 20/21 tax year.
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:
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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