If you have been in the same job for two years or more and are made redundant you will usually be entitled to redundancy money. The legal minimum that you are entitled to receive is known as ‘statutory redundancy pay’. There are exceptions where you are not entitled to statutory redundancy pay, for example, if your employer offers to keep you on or offers you suitable alternative work which you refuse without good reason.

The amount of statutory redundancy pay you are entitled to is dependent on your age and your length of service.

The payment is calculated based on the following calculations:

• Under 22 – half a week’s pay for each full year of service.
• Aged 22 to 40 – one week’s pay for each full year of service.
• Over 41 – one and half week’s pay for each full year of service.

Weekly pay is capped at £700, and the maximum length of service is capped at 20 years. In addition, the maximum statutory redundancy pay you can receive is capped at £21,000 in 2024-25. There are slightly higher maximums in Northern Ireland.

An employer can decide to make a higher payment, or you may be entitled to one as a result of your employment contract.

There is an overall £30,000 limit for redundancy pay which is tax free, regardless of whether this is your statutory redundancy pay or a higher pay-out from your employer.

There are a number of rules and regulations that you must be aware of when you employ staff for the first time.

HMRC’s guidance sets out some important issues to be aware of when becoming an employer.

1. Decide how much to pay someone – you must pay your employee at least the National Minimum Wage.
2. Check if someone has the legal right to work in the UK. You may have to do other employment checks as well.
3. Check if you need to apply for a DBS check (formerly known as a CRB check) if you work in a field that requires one, e.g. with vulnerable people or security.
4. Take out employment insurance – you will need employers’ liability insurance as soon as you become an employer.
5. Send details of the job (including terms and conditions) in writing to your employee. You need to give your employee a written statement of employment if you are employing someone for more than 1 month.
6. Ensure that you register as an employer with HMRC. You can do this up to 4 weeks before you pay your new staff. This process must also be completed by directors of a limited company who employ themselves to work in the company.
7. Check if you need to automatically enrol your staff into a workplace pension scheme.

When it comes to paying staff, you can use a payroll provider or process your payroll in-house. If you decide to run your own payroll you must choose suitable payroll software. Setting up payroll for the first time can be an onerous and complex task.

We can help you complete this set-up process and look after the payroll for you. Call if you need more information.

The tax treatment of termination payments has changed significantly over recent years. The changes have aligned the rules for tax and secondary National Insurance contributions (employer (NICs)) by making an employer liable to pay NICs on termination payments they make to their employees. 

HMRC has announced that it is aligning its approach to providing advance assurance on certain termination payment enquiries. 

HMRC guidance had previously committed HMRC to giving a binding answer if you made enquiries on termination cases involving:  

• the disability and injury compensation exception;
• the foreign service exception;
• how the £30,000 threshold applies to payments made by the third party and by the employer; and
• non-cash provisions.

HMRC will no longer give a binding answer on these cases outside the normal Non-Statutory Clearance process, for example, where there is a genuine point of uncertainty on the correct treatment.

This means that any future enquiries from taxpayers and employers on termination payments should be dealt with through the existing Non-Statutory Clearance procedure. HMRC will no longer provide clearance outside of the Non-Statutory Clearance route.

The letters in an employee’s tax code signify their entitlement (or not) to the annual tax free personal allowance. The tax codes are updated annually and help employer’s work out how much tax to deduct from an employee’s pay packet. 

The basic personal allowance for the tax year starting 6 April 2024 is £12,570 and the tax code for an employee entitled to the standard tax-free Personal Allowance is 1257L. This is the most common tax code and is used for most people with one job and no untaxed income, unpaid tax or taxable benefits (for example a company car).

Emergency tax codes can be used if HMRC does not receive a taxpayer’s income details in time after a change in circumstances such as:

• a new job
• working for an employer after being self-employed
• receiving company benefits or the State Pension

Employees on an emergency tax code will see one of the following codes on their payslip:

• 1257L W1
• 1257L M1
• 1257L X

These codes mean that an employee’s tax calculation is based only on what they are paid in the current pay period. The emergency tax codes are temporary and will usually be updated once the necessary details about previous income or pension payments are sent to HMRC. Taxpayers will remain on an emergency tax code until they have paid the correct tax for the year.