Job losses are an unpleasant reality in the current economic climate and the taxman can make redundancy even more of a financial burden, writes Les Mason.

People should be aware of their tax-free entitlement and make sure they are not caught out.

If you are made redundant the first £30,000 of a redundancy payment should be tax free.

However, you should be careful about how your employer handles the payment. If you are paid instead of being given notice, then you will be taxed on that as earned income, but if you are being compensated for breach of contract or loss of office then you should not be taxed.

Take care also if any wording in your pay-off suggests you are being compensated because of your past service - that could make you liable for taxation.

If you are in your 50s or older, make sure you can prove you are looking for work otherwise the Inland Revenue could treat your redundancy money as an early retirement payment and tax it.

If you are not sure about your entitlements check things out with some professional advice.

Les Mason is a partner with Bradford accountants Lishman Sidwell Campbell & Price.

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