Can You Claim Tax Back on a Redundancy Payment?

Yes, you can usually claim tax back on a redundancy payment, and many people are owed more than they realise. The first £30,000 of a qualifying redundancy payment is tax-free, but payroll systems routinely overtax the rest by treating the lump sum as ordinary monthly pay. How you get the money back depends on what happens after you leave: a new job often sorts it out on its own, while a spell of unemployment means claiming directly from HMRC.

Why You’ve Probably Overpaid

Most employers process the taxable portion of a redundancy payment using a 0T M1 tax code. The “0T” part means no personal allowance is applied to the payment, and “M1” means the tax is worked out on that payment in isolation, ignoring what you’ve already earned and been taxed on during the year. The result is that HMRC treats the lump sum as if your tax-free allowance doesn’t exist, which inflates the deduction.

Timing makes it worse. The personal allowance for most people is £12,570, spread across the tax year from 6 April to 5 April.¹ If you’re made redundant partway through the year, you may have used only part of that allowance against your salary. The 0T M1 code doesn’t take that unused portion into account. A second problem is that a large one-off payment can push you into a higher rate band for that single pay period, even when your total income for the year wouldn’t reach that band. Someone earning £35,000 who receives a big redundancy sum in one month can see 40% tax applied to part of it, despite being a basic-rate taxpayer overall.

One thing to check on your final payslip: your employer should have separated the tax-free redundancy element from other payments that are taxable in the normal way, such as payment in lieu of notice (PILON), accrued holiday pay, unpaid wages, and bonuses.² Getting that split wrong is one of the most common payroll errors, and it affects how much refund you’re due.

The £30,000 exemption applies to statutory redundancy pay and to any enhanced (contractual) redundancy pay combined.³ Non-cash items in the package, like a company car or laptop, are given a cash value and count toward that same limit.

Which Claim Route Applies to You

The route you use depends on what happens after your last day. Picking the wrong one is a common reason claims stall.

You Start a New Job Within Four Weeks

You don’t need to claim. Hand parts 2 and 3 of your P45 to your new employer, and their payroll will recalculate your cumulative tax position for the year. Any overpayment comes back to you automatically through your salary over the following pay periods.⁴ No forms, no contact with HMRC.

You’ve Been Unemployed for Four Weeks or More With No Taxable Benefits

Apply for a refund using form P50. You can submit it online through your HMRC personal tax account, or download and post the paper version.⁴ You’ll need parts 2 and 3 of your P45. One catch: you can’t use P50 if you’re still registered with a recruitment agency, even if they haven’t placed you. In that case, ask the agency to send your final pay and tax details to HMRC first.

You’re Claiming Jobseeker’s Allowance or Another Taxable Benefit

The Benefit Office handles the refund because the tax on your benefits feeds into the overall calculation. Send parts 2 and 3 of your P45 to HMRC, and they’ll work out what you’re owed. The refund is usually paid either after the tax year ends or after you stop claiming the taxable benefit, whichever comes first.⁵ Carer’s Allowance is treated the same way.

You’re Claiming Universal Credit

Universal Credit isn’t a taxable benefit, so it doesn’t complicate the refund. If it’s your only post-redundancy income, you can claim any overpaid tax directly from HMRC once you’ve been unemployed for four weeks. The P50 route applies.⁵

What You’ll Need Before You Claim

Whichever route applies, the paperwork is roughly the same. Gathering it up front is the single biggest thing you can do to avoid delays.

Parts 2 and 3 of your P45 from your former employer, showing pay and tax deducted so far in the current tax year. This is the most important document.⁴
A redundancy statement from your employer showing how the final payment was split between the tax-free redundancy element, PILON, holiday pay, and anything else. If the split isn’t clear, the whole amount may end up treated as taxable.
Your National Insurance number, which HMRC uses to locate your record. It’s on your payslips, your P45, or previous HMRC letters.
Bank account number and sort code, if you’d rather have the refund by transfer than by cheque.

Your employer’s payroll department should send the P45 and redundancy statement shortly after your final working day. If you haven’t received them within a few weeks, chase directly. If the redundancy spans two tax years, a P60 for the earlier year can help, though HMRC can normally pull that from their own records.

How Long the Refund Takes

Online claims through your HMRC personal tax account are processed faster than paper forms. A posted P50 typically takes around six weeks for HMRC to receive and process.⁶ HMRC confirms the amount by letter or through your online account, then pays by bank transfer if you’ve supplied details, or by cheque if not. If your claim is straightforward and you’ve heard nothing after eight weeks, call HMRC’s income tax helpline. Delays most often come from P45 details not matching HMRC’s records, or the employer not yet having filed their final payroll figures.

The Four-Year Deadline

You have four years from the end of the tax year in which the overpayment happened to make your claim. After that the tax year closes and the money is gone. If you were made redundant during the 2025–26 tax year, you have until 5 April 2030 to file.⁶ There’s no reason to wait. The sooner you claim, the sooner the money is back, and you avoid mislaying paperwork.

Watch Out for Refund Scams

People who have just been made redundant are a common target for tax refund scams. Fraudsters send emails, texts, and voicemails claiming to be from HMRC, saying you’re owed a refund and asking you to click a link or hand over personal details. HMRC will never contact you by email, text, or phone to tell you about a refund or to ask you to claim one, and will never threaten legal action by phone or ask for financial information by text.⁷

Forward suspicious texts to 60599 and suspicious emails to phishing@hmrc.gov.uk. Claim only through your HMRC personal tax account, the free HMRC app, or by posting the official form direct to HMRC. Third-party refund companies that cold-contact you often charge 25% to 50% of the refund for filing a P50, which you can do yourself in minutes at no cost.

1
GOV.UK. Income Tax Rates and Personal Allowances
2
MoneyHelper. Do You Have to Pay Tax on Your Redundancy Pay
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GOV.UK. Redundancy: Your Rights – Tax and National Insurance
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GOV.UK. Claim Back Income Tax When You’ve Stopped Working (P50)
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MoneyHelper. Claiming Your Tax Rebate After Losing Your Job
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Low Incomes Tax Reform Group. Tax Refunds
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GOV.UK. Scams Warning as Self Assessment Customers Targeted