by Connor | Aug 07, 2020 | COVID-19
If you have been made redundant because of COVID-19, you might want to know more about your redundancy entitlements and what tax loopholes could save your household money.
Redundancy is when you lose your job because the company cannot afford to keep you on. It has been happening throughout history because of failed businesses, cheaper labour abroad – and more recently because of COVID-19.
If you have lost your job because of the latter, you could make your employer aware that they can re-employ you and they will only have to pay 80% of your salary with support from the UK Government. This is part of their COVID-19 support packages for businesses.
If you are made redundant, you could be entitled to statutory redundancy pay.
To be eligible for redundancy pay, you must have worked for your last employer for the last two years.
You will then receive your average weekly pay (your weekly average pay over the 12 weeks prior to being made redundant) multiplied by 0.5,1 or 1.5 depending on your age, and then multiplied by the number of years you worked for that employer.
You will receive:
The maximum amount of service that you can receive redundancy pay is capped at 20 years. For example, if you worked for one employer for 35 years, you can only receive redundancy pay – at the rate of your age bracket(s) – for 20 of those years.
Some people who were made redundant because of COVID-19 may be worried about their average rate of pay for the 12 weeks prior to their redundancy. If you were earning less than you normally do because of the furlough scheme or another reason to do with COVID-19, your average weekly wage will be determined on what you normally would have earned rather than your furloughed pay.
This is important for businesses to know as well.
Redundancy pay is taxable but the first £30,000 of your redundancy package is not. For this reason, most people do not pay tax on their redundancy package. However, it is best to speak with professional UK accountants if you have concerns.
There are times when you will not qualify for statutory redundancy pay. The first is if you were fired from your job for unprofessional behaviour or misconduct in the workplace. You only receive redundancy pay if you are made redundant.
Other ways you may not qualify include:
If you haven’t formally been made redundant but have not been asked to work for four consecutive weeks or have not worked frequently within a 13-week period, you could claim to have been made redundant.
You can do this by informing your employer. If they do not reject this claim, you can then hand in your notice and claim redundancy. This is a complex area and you may wish to consult with an employment lawyer first.
Redundancy pay is not the only support available to you after being made redundant. You could receive financial support from Job Seekers Allowance (JSA) if you search for new work. Note, that you need to have savings of less than £16,000 to qualify, which may not be the case if you just received significant redundancy pay.
Another way to save money after being made redundant could be to use your marriage allowance. Those that are married or civil partners can pass on some of their unused tax free income to their partner. The amount they can transfer is £1,250, which means the working partner with the highest income will then have a tax-free threshold of £13,750 for this tax year.
This could save your household on tax money this year.
For further advice on how your household could save money through redundancy entitlements, shoot our friendly team your queries soon.
We understand this can be a difficult time for your family, but we’re here to advise you best and see what tax laws could work for you after redundancy.