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Processing Redundancy pay

Article ID

11624

Article Name

Processing Redundancy pay

Created Date

4th February 2020

Product

IRIS Payroll Professional, Earnie

Resolution

Redundancy payments under £30,000 are normally tax and NI free. From the 2020/21 tax year any amounts above this figure will subject to tax and employers class 1A NI contribution.

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” > “Alter Payments / Deductions
  • Click “Add new
  • Click “No” to the wizard message.
  • You will need to type in a name for the payment. This is how the item is shown on the payslip.
  • Set the Category to “Termination
  • Click “OK” to save the payment:
EAR TermPym 1 | Processing Redundancy pay

When you use this payment code you no longer need to split redundancy payment over/under £30,000 as was the previous method.

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


Previous advice, prior to 2020/21 tax year

For redundancy payments, the first £30,000 are tax & NI free. Any amount over this would be subject to tax, in order to achive this you will need to set up two payment codes.

To set up the First £30,000

  • Go to “Company” > “Alter Payments / Deductions
  • Click “Add new
  • Click “No” to the wizard message.
  • You will need to type in a name for the payment. This is how the item is shown on the payslip.
  • Set the Category to “Apply After Tax & NI Calculation
  • Set + or – to “Payment
  • Set Type to “Value
  • Set range check to “None
  • Set report group to “None
  • Set clear to-date totals to “Annually
  • Click “OK” to save the payment:
IPP Red 1 | Processing Redundancy pay

You can now use this paycode to pay a tax and NI free amount to employees


To set up amount over £30,000

  • Set up another new payment exactly as above EXCEPT:
  • et the Category to “Apply after NI Calc but Before Tax Calc
IPP Red 2 | Processing Redundancy pay
  • Use this code to pay employees a value that will be taxed but will not affect the NI calculation.
  • Enter the remaining value of any redundancy over the £30,000 level.

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