Tax if you lose your job
If you’ve just lost your job, you might be wondering if you can claim a tax refund…
Because your tax is usually calculated on a yearly basis, if you’ve stopped working part way through the tax year, you might have paid too much tax and be able to claim a refund!
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Why will I have paid too much tax?
To explain: the personal allowance (£12,570 in the 2021/22 tax year) is usually divided throughout the year, so you receive a proportion in each pay packet. If you stop work part way through a tax year, you may not have received your entire tax-free allowance and will probably have paid too much tax.
Example
Davey is on a zero hours contract and is paid weekly. Davey’s last payslip in the 2021/22 tax year (dated 30 July 2021) indicated he had earned £6,615.95 and paid £500.60 in tax. On 1 August, his employer told Davey there was no work for the foreseeable future.
If Davey does not work again for the rest of the tax year (and does not receive any taxable benefits like Jobseekers Allowance), at the end of the 2021/22 tax year his tax position will be:
- Earnings £6,615.95
- Less personal allowance (£12,570)
- Income subject to tax £0
As Davey has no income on which he has to pay tax (because of the personal allowance) in 2021/22, Davey will have overpaid £500.60 in tax.
How do I get the tax refund?
If you can wait until the end of the tax year (5 April 2022), HMRC’s automatic reconciliation system should aggregate your pay and tax details and HMRC should issue you with a tax refund automatically. You should also receive a P800 tax calculation. It is important that you check the calculation and that the refund is correct, as set out in our guidance.
If you cannot wait for the 2021/22 P800, you should be able to ask HMRC to do an in-year refund, using form P50. There is more information on how to complete form P50 on our website, including important information about when you can’t complete it – for example, if you are going to claim taxable benefits. Note that although you can complete form P50 if you think you might get another job at a later date, your tax position may get a little messy, so to be on the safe side you may want to wait until the end of the tax year for your refund.
What payments might I get if I lose my job?
If you lose your job, your employer may have to pay you certain sums of money like a payment in lieu of notice (if you are not asked to work your notice period), or a payment for accrued holiday (holiday you have built up but not taken). You might also be entitled to statutory redundancy pay if:
1. You are an employee AND
2. You have at least two years’ service with your employer.
Therefore, you will not be entitled to statutory redundancy pay if you are an employee but you have less than two years’ service with your employer. Similarly, if you are a ‘worker’ for employment law purposes (this will include most people on a ‘zero hours’ contract like Davey) then you will not be eligible for statutory redundancy pay, even if you have more than two years’ service.
We look at the general tax implications of receiving things like pay in lieu of notice, accrued holiday pay or redundancy pay on our website and more specifically at being made redundant as a consequence of the coronavirus on the dedicated page in this section.
How does losing my job affect my benefits?
If you are receiving tax credits, universal credit or other benefits your claim may be impacted if you lose your job. You should inform the department or authority who pays the benefit of your change in circumstances.
Can I claim benefits if I lose my job?
If you are wondering what benefits you might be able to claim as a consequence of losing your job, you can find some general information on the MoneyHelper website. We strongly recommend you speak to a welfare rights adviser who can go through a full benefits check with you.