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Do I Pay Tax on Redundancy Money If I Get a New Job?

By: Maggie Lonsdale BA (hons) - Updated: 30 Sep 2012 | comments*Discuss
Employment Contract Job Redundancy


I have heard that if you return to work within three months of being made redundant that you would be charged tax on any redundancy lump sum that was paid to you. Is this correct?

(P.R, 19 May 2009)


Hello and thank you for your question.

The short answer to your question is, thankfully, no.

The long answer depends a little more on how much you have been given as a redundancy payment. Any redundancy payment of less than £30,000 is tax and national insurance free - essentially, it's yours to do what you want with.

If you find another job quickly and you have not contravened any details of your employment contract, then good on you! Just be sensible with your money - maybe a high interest account, or an ISA (there will be tax implications on profit you make in a high interest account, but this is nothing to do with the fact that it's money from a redundancy payment.)

The details of your employment contract are worth considering here, before you get too carried away. Be sure to look at any details that relate to new employment as this could have an effect on your money. Sales jobs, or banking, or recruitment... any fields where your knowledge of clients or products is key to your 'employability'.

In such careers, it is very common to have a clause in your employment contract that says that you cannot work for certain companies within a certain timeframe - often within a certain geographical area, too, especially if you are in central London or a major city where competitors tend to be nearby. Now, some people claim that this infringes their 'human right to earn a living', but if you signed your employment contract, in can be hard to argue it. So, if your new job is with a competitor (which they tend to be, don't they?!) then I would make sure you that you are adhering to the letter of your employment contract before you go spending your redudancy money.

This is especially important if your previous employer is known for being pretty harsh. That's not to say that you shouldn't worry if not, so it is definitely advisable for everyone to check their employment contracts, but some companies can be far stricter if they feel you have somehow taken advantage.

It is also worth noting that, unless you start a new job pretty quickly (within a month, really) and it doesn't contravene your employment contract, it's worth signing on at your local Job Centre so you don't miss out on any National Insurance contributions. You may also be entitled to Job Seekers Allowance, and other benefits, depending on the size of your redundancy payment and personal circumstances.

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