Redundancy tax limit rise rejected by government

The government has rejected calls for an increase on the cap for tax-free redundancy payments.

Employers can currently pay axed staff a compensation payment of up to £30,000 before income tax kicks in.

However, this limit has existed since 1987, and Jonathan Maude, head of the employment group at law firm Hogan & Hartson, believes raising it would be good for everyone in the current economic climate. Figures from HBOS show that a house in London worth £100,000 in 1987 would be worth £377,200 today.

“It is in both the employer’s and employee’s interest that it’s raised,” Maude told Personnel Today. “A higher tax-free limit would be a very useful weapon for HR in the settlement armoury, giving parties more room to manoeuvre.

Graham Farquhar, partner at professional services firm Ernst & Young, said reviewing the exemption figure would help employees in lower paid industries such as retail.

But HM Revenue & Customs said there were no plans currently to change the cap.

“All taxes are kept under review at all times, and any changes to the cap would be for ministers to decide,” a spokesman said.

A CBI spokesman said raising the tax-free threshold could force employers to increase redundancy payments against their will.

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