Do You Get Taxed On Holiday Pay When You Leave A Job?
If you are leaving a job and are keen to learn whether or not you will have to pay tax on the holiday pay that you receive, the following blog post will help you in answering this question. We will discuss the applicable tax on holiday pay depending on one’s working pattern and the payments employees can expect to get when they leave a job.
Do You Get Taxed On Holiday Pay When You Leave A Job?
Yes, you get taxed on your Holiday Pay when you leave a job. Holiday Pay is part of the payment package that is given to employees when they leave a job whether it is due to the end of an employment contract, moving to another source of employment, or being made redundant by their current employer.
Holiday Pay is a taxable income whether an employee receives it during their employment or at the end of their employment when they are leaving. In addition to income tax, Holiday Pay is also subject to National Insurance deductions.
The tax rate that applies to your regular income will also apply to your Holiday Pay. However, if you are getting your Holiday Pay as part of a redundancy package, the first £30,000 will be tax-free. This redundancy package can include your last wage, any bonuses or commissions that you may have earned as well as a lump sum amount in the form of final payment to you.
This means that all the allowances that you get when being declared by your employer (including Holiday Pay), will not be taxed as long as they remain under the £30,000 limit. If your redundancy package exceeds this amount, only the amount above £30,000 will be taxed while the remaining amount will be tax-free.
Most workers in the UK are entitled to 5.6 weeks of Holiday Pay; based on which you can calculate your holiday entitlement and get an estimate of income tax deduction.
Below are some guidelines on how Holiday Pay is calculated based on your working pattern; whether you are a full or part-time worker:
- If you work for a fixed number of hours under a fixed pay, your weekly holiday pay will be equal to one week’s pay.
- If you are a shift worker with a fixed number of working hours, your weekly Holiday Pay will be calculated at the average number of weekly fixed hours, at the average hourly rate during the last 52 weeks.
- If you have no fixed hours due to casual work or a zero-hours contract, your weekly Holiday Pay will be based on your average pay from the previous 52 weeks; taking into account only those weeks in which you were paid.
How Much Tax Do You Pay On Holiday Pay When You Leave A Job?
The amount of tax that you are required to pay on your Holiday Pay when you leave a job depends on the number of days that apply to your Holiday Pay as well as your monthly income.
Therefore, salaried individuals pay income tax and national insurance on their Holiday Pay as they would on a regular income. The reason for this is that when employees receive an additional payment in the form of a holiday pay, commission or bonus in the UK, it is treated in the same way as their income when it comes to tax calculations.
This means that if you earn £30,000 a year and are classified as a basic rate taxpayer, you will be paying 20% tax and 12% national insurance on incomes above £12,570. If you get a Holiday Pay of £3,000, you will still be paying 20% tax and 12% national insurance on this as well.
What Happens If You Have Overpaid Taxes When Leaving Your Job?
If you end up overpaying your taxes when leaving your job, you can claim a tax refund from the HMRC after the end of the tax year. Claims for overpaid taxes can be made for up to four years. This means that an overpaid tax in 2022 can be claimed until 2026.
Tax refunds are usually paid by HMRC within 5 working days directly to the claimant’s UK account. If you do not claim it within three weeks, HMRC will send you a cheque through the post.
To claim a tax refund, you will need to use the P60 form and share the following details with HMRC:
- your earnings in total
- the amount of income tax that you have paid
- the amount of income tax that you have paid in excess
Additionally, you must also provide details of your National Insurance number and employer reference number.
Are There Any Other Payments That You Can Claim When You Leave A Job?
Yes, there are other payments that you can claim from your employer when you leave a job. These include the following:
- Full pay until your last working day
- Unclaimed holiday pay
- Overtime, bonus or commission
- Sick pay
- Maternity pay
- Redundancy pay
Claims that an employee can make while resigning from their job depend entirely on the circumstances under which an employee resigns and the terms agreed to in their employment contract.
When leaving a job, employees are usually expected to give a two-week notice when they resign from their job and continue to fulfil their duties during this time. If you resign from your job and refuse to fulfil your duties during your notice period or refuse to serve a notice period by resigning on an immediate basis without good reason, you may not be able to make any claims from your employer.
The above discussion has not only concluded that your holiday pay is taxed when you leave a job but also highlighted how your Holiday Pay is calculated based on your working pattern. If you end up overpaying your taxes when you leave a job, you can apply for a claim of refund for the amount that you have paid in excess at the end of the tax term.