UK Redundancy Pay Calculator
Calculate your UK redundancy pay and tax for the 2025-26 or 2024-25 tax year. Enter your salary, redundancy payment, and optional notice or holiday pay to see how much you will take home after tax.
Key Takeaway
The first £30,000 of redundancy pay is tax-free. Above that, you pay income tax at your marginal rate — but no employee National Insurance.
Key Facts — 2025-26
Weekly Pay Cap
£719
Max Statutory Redundancy
£21,570
Tax-Free Threshold
£30,000
Employee NIC on Termination
None
Employer Class 1A NIC
15% over £30k
Max Service Years
20 years
Statutory Redundancy Estimate (optional)
Net Payment
£25,000.00
After tax
Total Tax
£0.00
Effective rate: 0.00%
Tax-Free Amount
£25,000
First £30,000 exempt
| Item | Amount |
|---|---|
| Redundancy Payment | £25,000.00 |
| Tax-free portion (first £30,000) | £25,000.00 |
| Taxable excess | £0.00 |
| Gross Total | £25,000.00 |
| Tax | Amount |
|---|---|
| Total Tax | £0.00 |
| Net Payment (Take-Home) | £25,000.00 |
* The first £30,000 of a qualifying redundancy payment is tax-free.
* No employee National Insurance contributions are due on termination payments.
* Notice pay (PILON) and holiday pay are taxable in full as earnings.
* The statutory redundancy estimate is based on government guidelines and may differ from your actual entitlement.
How Redundancy Pay is Taxed in the UK
When you are made redundant, the tax treatment of your payment depends on what it includes. The £30,000 tax-free exemption applies to qualifying termination payments — this covers statutory redundancy pay, enhanced or contractual redundancy pay above the statutory minimum, and any ex-gratia (goodwill) payments made as compensation for loss of employment.
Amounts above £30,000 are subject to income tax at your marginal rate, but crucially, no employee National Insurance contributions are due on qualifying termination payments, even on the taxable excess. Your employer, however, must pay Class 1A NIC at 15% on amounts over £30,000.
Certain elements of a redundancy package are always taxable in full and do not benefit from the £30,000 exemption. These include pay in lieu of notice (PILON), accrued holiday pay, salary arrears, and any contractual bonus or commission payments. These are treated as normal earnings and are subject to both income tax and employee National Insurance.
Since April 2018, HMRC applies the Post-Employment Notice Pay (PENP) formula to all termination payments. PENP calculates the minimum amount that must be treated as earnings for the unworked notice period, ensuring that notice pay is always taxed regardless of whether the employment contract contains a PILON clause. Only the residual amount after deducting PENP qualifies for the £30,000 exemption.
Your employer should deduct tax from any taxable amounts through PAYE before paying you. If you are a higher or additional rate taxpayer, or if the payment pushes you into a higher band, you may owe additional tax that can be collected through Self Assessment.
Statutory Redundancy Pay
If you have been continuously employed for two or more years, you are entitled to statutory redundancy pay. The amount depends on your age, length of service (maximum 20 years), and weekly pay (capped at £719 for 2025-26).
| Age at Redundancy | Weeks' Pay per Year |
|---|---|
| Under 22 | 0.5 weeks |
| 22 to 40 | 1 week |
| 41 and over | 1.5 weeks |
Weekly pay is capped at £719 for 2025-26. Maximum 20 years of service count.
Maximum statutory redundancy pay: £21,570 (20 years × 1.5 × £719).
Tax Rates on Redundancy Pay — 2025-26
The taxable portion of your redundancy payment (above £30,000) is added to your other income and taxed at your marginal rate. The Personal Allowance is £12,570 and tapers by £1 for every £2 of income above £100,000.
England, Wales & Northern Ireland
| Band | Rate |
|---|---|
| £12,571 – £50,270 | 20% |
| £50,271 – £125,140 | 40% |
| Over £125,140 | 45% |
Scotland
| Band | Rate |
|---|---|
| £12,571 – £14,876 | 19% |
| £14,877 – £26,561 | 20% |
| £26,562 – £43,662 | 21% |
| £43,663 – £75,000 | 42% |
| £75,001 – £125,140 | 45% |
| Over £125,140 | 48% |
Worked Example
Scenario: You earn £45,000 per year in England and receive a redundancy payment of £50,000. You have no PILON or holiday pay.
Step 1 — Tax-free portion: The first £30,000 is exempt from tax. Taxable excess: £50,000 − £30,000 = £20,000.
Step 2 — Marginal rate: Your £45,000 salary already uses the Personal Allowance (£12,570) and part of the basic rate band. You have £50,270 − £45,000 = £5,270 of basic rate band remaining.
Step 3 — Tax calculation:
- £5,270 taxed at 20% (basic rate) = £1,054
- £14,730 taxed at 40% (higher rate) = £5,892
Total tax: £6,946
Net payment: £50,000 − £6,946 = £43,054. No employee National Insurance is deducted on any part of the redundancy payment.
Frequently asked questions
What is the £30,000 tax-free threshold?
The first £30,000 of a qualifying redundancy payment is exempt from income tax and National Insurance. This applies to statutory redundancy pay, enhanced redundancy pay, and ex-gratia payments. Any amount above £30,000 is subject to income tax at your marginal rate, but no employee NIC is charged on the excess.
What counts as a qualifying termination payment?
Qualifying termination payments include statutory redundancy pay, enhanced or contractual redundancy pay above statutory minimums, and ex-gratia payments made because of redundancy. Payments for restrictive covenants or compensation for breach of contract may also qualify. PILON, holiday pay, salary arrears, and contractual bonuses do not qualify — they are taxed as normal earnings.
Do I pay National Insurance on redundancy pay?
No employee National Insurance is due on qualifying termination payments, even on amounts above £30,000. Employers must pay Class 1A NIC at 15% on the portion exceeding £30,000. Notice pay (PILON) and holiday pay are subject to both employee and employer NIC as they are treated as normal earnings.
How is PILON (pay in lieu of notice) taxed?
Pay in lieu of notice is taxed as normal earnings — subject to income tax and employee National Insurance in full. PILON does not benefit from the £30,000 tax-free exemption. Since April 2018, HMRC uses the PENP formula to calculate the minimum amount that must be treated as notice pay, regardless of contract terms.
What is PENP?
PENP (Post-Employment Notice Pay) is a formula that calculates the minimum portion of a termination payment treated as pay for the unworked notice period. The formula is: (basic pay × unworked notice days ÷ pay period days) minus any notice pay already received. PENP ensures notice pay is always taxed, even without a contractual PILON clause.
Are Scottish taxpayers treated differently?
The £30,000 tax-free exemption applies equally across the UK. However, the taxable portion above £30,000 is subject to Scottish income tax rates for Scottish taxpayers. Scotland has six bands (19% to 48%) compared to three in England/Wales/NI (20% to 45%), so the tax on the excess may differ depending on your total income.
What is statutory redundancy pay and how is it calculated?
Statutory redundancy pay is the legal minimum if you are made redundant with two or more years of continuous service. It is based on your age, length of service (max 20 years), and weekly pay (capped at £719 for 2025-26). You receive 0.5 weeks per year under 22, 1 week per year aged 22-40, and 1.5 weeks per year aged 41+. Maximum: £21,570.
Do I need to report redundancy pay on my tax return?
If you file a Self Assessment tax return, report any taxable redundancy pay (amounts above £30,000). The tax-free portion does not need to be reported. Your employer should deduct tax through PAYE before paying you. If all tax was correctly deducted and you do not normally file a return, no further action may be needed.
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