Redundancy can be a tough financial blow, and the last thing you want to do is leave money on the table. What many people don’t realise is that they could be owed tax refunds after redundancy. HMRC often applies emergency tax codes or deducts too much tax from redundancy payments, meaning you might have overpaid.

This guide will walk you through everything you need to know about claiming a tax refund, helping you get back what you’re owed. We’ll cover: 

  • How redundancy pay is taxed
  • When you might be due a tax refund
  • How to claim your refund from HMRC
  • Other tax considerations after redundancy
  • What to do if you transition to self-employment

Understanding redundancy pay and tax

When you’re made redundant, you may receive different types of payments:

  • ​​Statutory redundancy pay – This is the legal minimum your employer must pay if you’ve been with them for two years or more. It’s tax-free up to £30,000.
  • Contractual redundancy pay – Some employers offer enhanced redundancy packages, which can push you over the £30,000 tax-free limit. Anything over that threshold is taxable.
  • Payment in lieu of notice (PILON) – If your employer doesn’t require you to work your notice period, they may pay you instead. This is taxed like normal income.
  • Holiday pay – Any untaken holiday you’re paid for is taxable.

A common issue is being placed on an emergency tax code, which can lead to overpayments. If this happens, you may be owed money back from HMRC.

When you might be due a tax refund 

You could be owed tax refunds after redundancy in several situations:

  • Redundancy that occurs partway through the tax year – If you don’t work for the rest of the year, you may have overpaid tax as it’s usually calculated based on year-round income.
  • Emergency tax codes applied to redundancy payments – This often results in higher deductions than necessary.
  • You’ve paid tax on income under your personal allowance – If redundancy means your total earnings for the year fall below the personal tax-free threshold, you can claim a tax rebate.
  • You don’t return to work for the remainder of the tax year – If you don’t earn any more taxable income, you’re likely owed a refund.

Example – John’s tax refund

John, a plumber from Shrewsbury, was made redundant in September. He earned £25,000 before redundancy and received an £8,000 redundancy payment. Due to an emergency tax code, he overpaid tax. After claiming, he received a refund of £2,300.

Most tax refunds are processed after the tax year ends in April, but claims can be made sooner in some cases.

How to claim your tax refund from HMRC 

Claiming your refund is straightforward if you follow these steps:

Step 1: Gather your documents

You’ll need: 

  • Your P45 (provided when you leave your job)
  • Details of your redundancy payment
  • Payslips showing any tax deducted

Step 2: Choose the right claim method

  • Online via Government Gateway– The quickest method if you have an account.
  • Form P50– If you’re not returning to work within the same tax year.
  • Form P53– For refunds related to redundancy overpayments.
  • Self Assessment– If you normally file a tax return, you may need to claim your refund this way.

Step 3: Wait for processing

Tax refunds after redundancy usually take a few weeks, but can take longer depending on HMRC’s workload. If you don’t hear back, get in touch with HMRC directly.

Additional tax considerations after redundancy 

  • Job Seekers Allowance (JSA) and tax – JSA is taxable, so it could affect your overall refund.
  • Investing redundancy money – If you invest your redundancy pay, consider the tax implications.
  • Pension contributions – Making pension contributions from redundancy money can provide tax relief.
  • Maximising tax-free redundancy pay – If your redundancy pay is close to £30,000, look into ways to reduce taxable amounts.
  • Other benefits – You may be entitled to Universal Credit or other support.

Transitioning from employment to self-employment 

If redundancy pushes you towards self-employment, there are a few key tax changes to be aware of:

  • Register with HMRC – You must register for Self Assessment.
  • Track your income and expenses– You’ll need to report earnings and claim deductions.
  • Tax deadlines – Your first tax return will be due the following January.

If you need help, RIFT offers a specialist self-assessment service to make the process easier.

Claim your tax refund before it’s too late

To wrap up, here’s a quick recap: 

  • Many people overpay tax after redundancy without realising.
  • If you’ve been taxed on redundancy pay or haven’t worked the full tax year, you might be due a refund.
  • HMRC offers different ways to claim, so choose the best one for you.
  • If you’re moving to self-employment, make sure you register for tax correctly.

Don’t miss out on money that’s rightfully yours. Check if you’re eligible for a refund today using RIFT’s tax calculator. If you need any help with your self-assessment, get in touch with RIFT – we’re here to make tax simple!