A taxable redundancy payment is compensation provided to employees when their employment ends due to redundancy. Sporting testimonials are payments made to recognize a sportsperson's contributions. Both types of payments require careful handling in payroll due to specific tax treatment rules.
In the UK, tax legislation treats redundancy payments differently based on their value. PeopleXD needs to implement separate pay codes to manage these varying tax treatments correctly and ensure compliance with HMRC requirements.
Payment under £30,000: Generally tax-free but may be subject to specific National Insurance rules. This requires one pay code to be set up.
Payments over £30,000 - The portion exceeding £30,000 is taxable and subject to Employer Class 1 National Insurance contributions. This necessitates a separate pay code that has Employer Class 1 NIC enabled.
To set up pay code, follow the steps below in Portal.
Click Settings then under Codes, click Pay Codes.
Search for the relevant pay code then click the three-dot icon.
Click Edit then click Rules.
Click ADD then from the dropdown menu, select Taxable Redundancy.
To save changes, click OK.