Is redundancy pay tax-free?

The statutory redundancy payment is, up to £30,000 — and that allowance is shared with any ex-gratia top-up. But it does not cover the rest of what you are paid: notice pay and accrued holiday are earnings, taxed at your normal rate with National Insurance on top. If you are owed twelve weeks of notice, that alone is usually the largest taxable part of the package.

Why is my notice pay taxed when it is part of a redundancy?

Since April 2018 the PENP rules treat any payment in lieu of notice as earnings, whatever it is called in the settlement. Before then, structuring notice as "compensation" could make it tax-free; that route is closed. Working your notice or sitting on garden leave gives the same tax result — it is ordinary pay either way.

I have less than two years service. Do I get nothing?

No statutory redundancy pay — that needs two complete years. But notice pay and accrued untaken holiday are owed regardless of length of service, so the package is not zero. Set service below two years here and the tool shows exactly what remains.

Does this work for Northern Ireland?

Yes. Northern Ireland sets its own statutory limits and they are currently higher than Great Britain — £783 a week and £23,490 maximum. Pick Northern Ireland above and those apply. Calculators built only for Great Britain understate the figure.

Earning & Workincome · employment · tax

UK Redundancy Package Calculator — what you actually take home

The letter gives a redundancy figure. It is not what lands in your account.

Being made redundant pays you three different things, taxed three different ways, and the letter usually quotes only the first. Statutory redundancy pay is tax-free, and shares a £30,000 exemption with any ex-gratia top-up. Notice pay is not covered by it — since the PENP rules a payment in lieu is taxed as earnings whatever it is called. Accrued untaken holiday is not covered either. So "redundancy is tax-free up to £30,000" is true of one component and false of the other two, and someone with twelve weeks of notice and a fortnight of holiday can be several thousand pounds out. This adds all of it up and splits the tax the way HMRC does, including the National Insurance boundary, which sits in a different place again. Northern Ireland is included, with its own higher limits.

Basis: GB £751/£22,530 from 6 Apr 2026 (SI 2026/310) · NI £783/£23,490 · ERA 1996 s.86 & s.162 · ITEPA 2003 s.402D (PENP) · £30,000 termination exemption · verified 2026-08-12

The numbers

You actually take home: £12,404; from a £16,100 package
Tax-free: £8,400; redundancy pay and any top-up, up to £30,000
Taxed as earnings: £7,700; notice and holiday — the £30,000 never covers these
Income tax: £3,080
National Insurance: £616; on notice and holiday only
Statutory redundancy pay: £8,400; 12 weeks · GB, from 6 Apr 2026
Notice pay: £7,000; 10 weeks at full pay
Holiday pay: £700; 5 days accrued

Preview only — using a default Age, Service, Weekly pay, Notice.

The operator’s read

Caution

Your letter probably quotes £8,400 of redundancy pay. The package is £16,100, and £3,696 of it goes in tax and National Insurance — because only £8,400 is covered by the £30,000 exemption. Notice pay and holiday pay are earnings and are taxed like any other pay, which is the part almost everyone is surprised by.

Worth knowing

Check the letter itemises redundancy, notice and holiday separately. Where a single "compensation" figure is quoted, the PENP rules still tax the notice element as earnings, so an employer treating the whole payment as tax-free leaves you with the underpayment.

Your next step

Quit Runway (Can I Afford to Leave?) →Now see how long the take-home actually lasts at your real monthly costs.UK Redundancy Pay Calculator — statutory entitlement 2026 →Just the statutory redundancy figure, with the age-band walk shown in full.

Wrong answer, a missing option, or a tool you wish existed?

Methodology

Three payments, added together: statutory redundancy pay (ERA 1996 s.162 — the age-banded walk, weekly pay capped at £751 in GB or £783 in NI, total capped at £22,530 / £23,490), statutory notice pay (s.86 — one week per complete year to a maximum of twelve, at FULL weekly pay, since the s.227 cap is a redundancy-pay rule and does not reach notice), and accrued untaken holiday at the daily rate.

Tax: the £30,000 exemption (ITEPA 2003 Part 6 Ch.3) applies to TERMINATION payments — statutory redundancy plus any ex-gratia or enhanced amount. Notice pay and holiday pay are earnings and fall outside it entirely; since the PENP rules of April 2018 a payment in lieu is taxed as earnings whatever the contract calls it.

National Insurance draws its boundary somewhere else: employee NI is due on notice and holiday, and is NOT due on the termination amount above £30,000 (the employer pays Class 1A there). Two different lines across one payslip is the single most common source of a wrong expectation.

This applies one marginal rate to the taxable total. A large payout can straddle bands, and the tax is usually settled through PAYE and then corrected — the figure here is the right size, not a P800.

Scope: statutory minimums. A contractual enhanced-redundancy scheme pays more, and belongs in the top-up field. Pension contributions, salary sacrifice, student loan deductions and unpaid wages are not modelled.

Questions

Is redundancy pay tax-free?: The statutory redundancy payment is, up to £30,000 — and that allowance is shared with any ex-gratia top-up. But it does not cover the rest of what you are paid: notice pay and accrued holiday are earnings, taxed at your normal rate with National Insurance on top. If you are owed twelve weeks of notice, that alone is usually the largest taxable part of the package.
Why is my notice pay taxed when it is part of a redundancy?: Since April 2018 the PENP rules treat any payment in lieu of notice as earnings, whatever it is called in the settlement. Before then, structuring notice as "compensation" could make it tax-free; that route is closed. Working your notice or sitting on garden leave gives the same tax result — it is ordinary pay either way.
I have less than two years service. Do I get nothing?: No statutory redundancy pay — that needs two complete years. But notice pay and accrued untaken holiday are owed regardless of length of service, so the package is not zero. Set service below two years here and the tool shows exactly what remains.
Does this work for Northern Ireland?: Yes. Northern Ireland sets its own statutory limits and they are currently higher than Great Britain — £783 a week and £23,490 maximum. Pick Northern Ireland above and those apply. Calculators built only for Great Britain understate the figure.

For agents

Call this tool instead of computing in-context. Deterministic JSON in, computed values plus the benchmark read out. Full agent docs →

curl -s https://xearno.tools/api/v1/tools/uk-redundancy-package \
  -H 'content-type: application/json' \
  -d '{"age":45,"serviceYears":10,"weeklyPay":700,"holidayDays":5,"noticeTreatment":"pilon","exGratia":0,"taxRate":"40","niRate":"8","nation":"gb"}'

Schema: GET /api/v1/tools/uk-redundancy-package · MCP tool name: uk_redundancy_package

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