Will I put my £30,000 tax-free redundancy payout at risk if I work as a consultant at my former employer?

I was made redundant at the start of June from the company that I had worked at for 15 years. As part of this I had a settlement package, which included my full £30,000 tax-free redundancy pay allowance, plus some more taxed money on top of that. I have decided to set up as a digital marketing consultant and have secured a couple of days work a week with a rival to my former employer. I have also been discussing doing two or three days a week consulting for my previous employer. This would be doing something different to my old job, which has ceased to exist, but would involve parts of the business I used to work with. Am I able to work at my old employer, as a consultant, working through my own limited company, doing two or three days a week, without putting my tax-free redundancy payout at risk? Redundancy: I was made redundant at the start of June from the company that I had worked at for 15 yearsKate Underwood, founder at Southampton-based Kate Underwood HR and Training, said: This is an important question to ask given the size of your tax-free redundancy payment.The first and most important issue to address is, was the redundancy genuine? After all, that £30,000 exemption hangs entirely on the role actually ceasing to exist.When a job is made redundant, HMRC looks at substance rather than job titles. In other words, if you end up back in the same building doing recognisably the same work with a different label on it, they can argue the redundancy was never real and the payment was something else dressed up.The fact that you'd be working on parts of the business you used to deal with isn't fatal on its own, but it does mean the difference between the old role and the new engagement needs to be obvious to an outsider, not just to you and your former employer.It's also worth flagging that the risk isn't only yours. Kate Underwood is the founder of Kate Underwood HR and TrainingIf it unravels, the ex-employer is the one left holding the PAYE liability, which is exactly why some employers get twitchy about rehiring people they've just paid off.Timing matters, too. There's no magic number of weeks, but the closer the return is to the exit, the worse it looks.You were made redundant at the start of June and it's now mid-August, so you've got a bit of daylight, which helps.The four week re-engagement rule under section 138 of the Employment Rights Act has long passed, so that particular trap isn't in play.Second, the settlement agreement. This is the first document you should be reading and most people never look at theirs again after signing.You're already working for a direct rival, which for a lot of people would be the bigger 'live' problem, bigger even than the tax question.You need to check for non-compete clauses, non-solicitation of clients and staff, confidentiality, any no re-engagement wording, and crucially any clawback or repayment trigger.Some settlement agreements include a warranty that the employee hasn't lined up work with a competitor. If you signed one of those and had a conversation before the ink dried, that's a problem you need to address sooner rather than later.Third, all this has to be looked at against a backdrop of IR35 and employment status.Consulting two or three days a week for a former employer through your own limited company is about as red a flag as HMRC gets.If the ex-employer is a medium or large business, they decide your status and issue the determination, not you, and plenty of them take the cautious route and put returning ex-staff inside IR35 by default.The test comes down to control, substitution and mutuality of obligation. If you're sat at the same desk, on the same rota, reporting to the same manager and picking up whatever lands, in the eyes of HMRC you're an employee wearing a lanyard that says 'consultant.' If you want this to stand up, the practical stuff matters. Genuinely different scope with defined deliverables rather than open-ended days matter, as does a proper contract for services rather than a handshake.You'd also need to ensure you're sending invoices from the new limited company.Additionally, it's best that you supply your own equipment where possible, determine your own working hours, and secure a right of substitution if you can negotiate one.There can be no employee benefits, no old email address, no place on the organisation chart, no appearing in the team meeting as if you never left. Everything needs to be documented at the time rather than reconstructed two years later when someone, namely the Revenue, comes knocking.You should also be honest with yourself about capacity. A couple of days with the rival plus two or three with the old employer is a full week, which makes you look a lot more like someone with two jobs than someone running a consultancy.And there's a wider point for employers that's worth making. If you make a role redundant and buy the same person back three months later on a day rate, you've told everyone still on the payroll exactly what your redundancy process was worth.It's a morale issue as much as a tax one, and it's how sham redundancy claims start. This is Money podcast