This article will complete an example scenario to best explain the process and entries required for the method of declaring redundancy and severance payments. In this scenario, the overall payment received as per the P60/P45 is £100,000, of which £75,000 is relating to redundancy.
- Firstly, you need to go to the Employment > Pay received and tax paid pages and input the £25,000 of normal employment income.
- You will also need to enter any tax associated to the employment that was deducted at source.
- From here you then need to go to the Lump Sums page to enter the redundancy values
- As there is a £30,000 exemption, this value needs to be separated out. Please place the redundancy value of £30,000 in the box labelled for "Compensation and lump sum exemption, up to £30,000."
- In this scenario, the redundancy was £75,000. We have already input the £30,000 in relation to the exemption and therefore the remaining £45,000 needs to be declared in the box for "Redundancy and other lump sum and compensation payments in EXCESS of £30,000 exemption."
- You need to also ensure that any further tax deducted due to the redundancy payments is covered within the tax deducted box on screen "Please enter any tax deducted from these payments and not entered elsewhere"
- Now the entirety of the £100,000 and all associated tax deducted has been declared on the return and the tax generated should be as expected.
HMRC Forms mode:
- Firstly, you will need to go to the Employment pages and declare the £25,000 of income and any tax deducted associated to usual employment. These will be boxes 1 and 2 on the employment schedule.
- From here, you will need to browse to Additional Information > Page 2. On here you will see box 9, this is where you would enter the £30,000 income which is covered by the exemption
- In this scenario, the redundancy was £75,000. We have already input the £30,000 in relation to the exemption and therefore the remaining £45,000 needs to be declared in box 5.
- Please note, any tax deducted due to the redundancy payment will need to be input into box 6
- You should now have entered the entirety of the income and tax deducted and the tax result should be as expected.