Why income tax should factor in insolvency advice for employees

Published on November 22, 2013 by Crawfords Accounting

Many company owners seek insolvency advice not only for their own sake, but also to do their best to safeguard the jobs of their employees or, if redundancies are unavoidable, to make sure they are handled correctly.

One aspect many employers and employees alike may be unaware of, however, is the automatic deduction of income tax from payments made by the Redundancy Payments Office.

According to the Low Incomes Tax Reform Group, the first £30,000 of any redundancy payment is usually tax-free; however, HMRC automatically deduct the tax as they cannot immediately tell if it is subject to tax or not.

Anthony Thomas, chairman of LITRG, says: “It is your responsibility to ensure that you have paid the correct amount of tax and to check notices you receive from HMRC, such as P800 Tax Calculations.”

On review, it may be possible to claim back any overpaid tax deducted by HMRC on non-taxable portions of redundancy payments.

However, employees need to be aware of the issue – making income tax an important factor in the insolvency advice offered to conscientious employers who do not want their redundant staff to face undue hardship.

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