Redundancy Pay Calculator
✓ Verified for 2026/27Service Details
Statutory Breakdown
Technical Review & Statutory Compliance Notice: This UK Statutory Redundancy and Severance Tax model has been reviewed and verified for the 2026/27 tax year by David Vance, CTA FCA (Chartered Tax Adviser & Fellow Chartered Accountant). All age multipliers, continuous service rules, weekly statutory pay caps, and the £30,000 tax-free termination exemption strictly comply with the Employment Rights Act 1996, Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003 Sections 401–416), and HMRC guidelines.
2026/27 Statutory Redundancy Pay Entitlement Matrix
Employment Rights Act 1996 Statutory RatesStatutory Redundancy Pay (SRP) depends on your age during each completed year of continuous service (capped at 20 years). The table below shows the statutory multiplier weeks and statutory capped cash values (at the £700 statutory weekly cap). All statutory redundancy pay is 100% tax-free under the £30,000 exemption.
| Continuous Service | Under 22 (0.5 wk/yr) | Age 22 to 40 (1.0 wk/yr) | Age 41+ (1.5 wk/yr) | Max Statutory Value | Tax Status |
|---|---|---|---|---|---|
| 2 Years (Min. Qualifying) | 1.0 week (£700) | 2.0 weeks (£1,400) | 3.0 weeks (£2,100) | £2,100.00 | 100% Tax-Free |
| 5 Years | 2.5 weeks (£1,750) | 5.0 weeks (£3,500) | 7.5 weeks (£5,250) | £5,250.00 | 100% Tax-Free |
| 8 Years | 4.0 weeks (£2,800) | 8.0 weeks (£5,600) | 12.0 weeks (£8,400) | £8,400.00 | 100% Tax-Free |
| 10 Years | 5.0 weeks (£3,500) | 10.0 weeks (£7,000) | 15.0 weeks (£10,500) | £10,500.00 | 100% Tax-Free |
| 12 Years | 6.0 weeks (£4,200) | 12.0 weeks (£8,400) | 18.0 weeks (£12,600) | £12,600.00 | 100% Tax-Free |
| 15 Years | 7.5 weeks (£5,250) | 15.0 weeks (£10,500) | 22.5 weeks (£15,750) | £15,750.00 | 100% Tax-Free |
| 18 Years | 9.0 weeks (£6,300) | 18.0 weeks (£12,600) | 27.0 weeks (£18,900) | £18,900.00 | 100% Tax-Free |
| 20 Years (Statutory Max Cap) | 10.0 weeks (£7,000) | 20.0 weeks (£14,000) | 30.0 weeks (£21,000) | £21,000.00 (Max) | 100% Tax-Free |
Complete Guide to UK Statutory Redundancy Pay & Severance Tax (2026/27)
Redundancy is a legally defined termination process under UK employment law when an employer reduces workforce size, closes a business branch, or discontinues specific job roles. Understanding the statutory calculation formula, weekly pay caps, notice pay taxation, and the HMRC £30,000 tax-free exemption ensures you receive your full legal severance entitlement.
1. Statutory Redundancy Eligibility & Continuous Service Rules
To qualify for mandatory Statutory Redundancy Pay (SRP) under the Employment Rights Act 1996, an employee must satisfy statutory conditions:
- 2 Years Continuous Employment: You must have worked continuously for your employer for a minimum of 2 complete calendar years (104 weeks). Service with previous companies generally does not count unless transferred under TUPE (Transfer of Undertakings Protection of Employment) regulations.
- Employee Status: You must be an employee working under an employment contract. Self-employed sole traders, independent contractors, agency workers, and members of the armed forces are not eligible for statutory redundancy pay.
- Dismissal for Redundancy: The employment termination must be genuine redundancy (business closure, relocation, or diminished requirement for your role). Resigning voluntarily or dismissal for misconduct does not qualify.
- Trial Periods in Suitable Alternative Employment: You have the legal right to a 4-week trial period in any alternative role offered by your employer. If you reasonably refuse the alternative role during the trial, you retain your redundancy pay rights.
2. The 3-Tier Age Multiplier System & Statutory Weekly Caps
Statutory Redundancy Pay is calculated counting backwards from your final day of service across completed full years:
For each full completed year of continuous service where you were aged under 22.
For each full completed year of continuous service where you were aged 22 to 40.
For each full completed year of continuous service where you were aged 41 or older.
Statutory Caps & Limitations (2026/27):
- Service Cap: Only the most recent 20 years of continuous service count toward statutory pay.
- Weekly Pay Cap: Weekly pay is capped at the statutory limit (£700.00). If your actual gross weekly pay is lower, your redundancy is calculated using your actual pay.
- Maximum Statutory Redundancy Pay: Capped at 30 weeks (£21,000.00 maximum statutory payout).
3. The £30,000 Tax-Free Exemption & Severance Taxation (ITEPA 2003)
Under Sections 401 to 416 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), genuine redundancy compensation benefits from unique tax relief:
The First £30,000 (100% Tax-Free)
• 0% Income Tax
• 0% Employee National Insurance
• 0% Employer National Insurance
Applies to statutory redundancy, ex-gratia compensation, and non-contractual severance.
Portion Exceeding £30,000
• Subject to Income Tax: Taxed at your marginal rate (20%, 40%, or 45%).
• 0% Employee National Insurance: Employees pay zero NICs on the excess!
• 15% Employer Class 1A NICs: Paid by the employer on severance exceeding £30k.
4. PILON (Payment in Lieu of Notice) & Holiday Pay Tax Rules
A common misconception is that all payments in a severance agreement are tax-free up to £30,000. HMRC strictly separates genuine redundancy compensation from general earnings under Post-Employment Notice Pay (PENP) legislation:
| Severance Element | Income Tax Treatment | Employee NI (8%/2%) | Eligible for £30k Exemption? |
|---|---|---|---|
| Statutory Redundancy Pay | 0% (Tax-Free) | 0% (Exempt) | YES (£30,000 Cap) |
| Ex-Gratia / Enhanced Severance | 0% up to £30k / Marginal above | 0% (Always Exempt) | YES (£30,000 Cap) |
| Pay in Lieu of Notice (PILON / PENP) | Full Income Tax (20%/40%/45%) | 8% / 2% NICs | NO (General Earnings) |
| Accrued Untaken Holiday Pay | Full Income Tax (20%/40%/45%) | 8% / 2% NICs | NO (General Earnings) |
| Legal Fee Contribution (£500+ for Advice) | 0% (Tax-Free) | 0% (Exempt) | YES (Paid direct to solicitor) |
5. Redundancy Pension Sacrifice: Shielding Packages Above £30k
If your redundancy or severance package exceeds £30,000, you can request an employer pension sacrifice before the settlement agreement is signed:
How Redundancy Pension Sacrifice Saves Thousands:
- Example Scenario: You receive a £50,000 severance package. The first £30,000 is tax-free. The remaining £20,000 would normally be taxed at 40% (costing you £8,000 in Income Tax).
- Pension Sacrifice Agreement: You instruct your employer to pay the £20,000 taxable excess directly into your workplace pension or SIPP as an employer pension contribution.
- Immediate Tax Saving: The entire £20,000 enters your pension with £0 Income Tax and £0 National Insurance deducted, preserving 100% of your severance value and preventing you from being pushed into higher tax brackets or the £100k Personal Allowance taper.
6. The "Month 1 / 0T" Emergency Tax Code Trap & How to Reclaim Refunds
When an employer pays taxable redundancy pay (or PILON) on your final payslip after issuing your Form P45, HMRC rules require payroll to apply a non-cumulative 0T Month 1 tax code:
Why Month 1 Codes Cause Severe Tax Overpayments:
Under a Month 1 code, payroll software assumes you earn that large lump sum every single month of the year. A £20,000 taxable severance payment will be taxed as if your annual salary is £240,000, subjecting most of it to 40% and 45% Additional Rate tax!
How to Reclaim Your Overpaid Redundancy Tax from HMRC:
- If You Are Not Starting Another Job: Submit Form P50 online through your HMRC Personal Tax Account to claim an immediate mid-year tax rebate (typically paid within 3 to 5 working days).
- If You Are Retiring or Taking a Pension: Submit Form P53 to HMRC along with Parts 2 and 3 of your P45.
- If You Start a New Job Immediately: Your new employer will submit your P45 through RTI payroll, and the tax overpayment will automatically balance out in your subsequent monthly payslip.
7. Settlement Agreements vs. Statutory Redundancy
Many employers offer Settlement Agreements (formerly Compromise Agreements) providing enhanced compensation in exchange for waiving employment tribunal claims:
- Enhanced / Contractual Multipliers: Employers frequently offer enhanced redundancy terms (such as 1 month's pay per year of service without statutory weekly caps). The first £30,000 remains 100% tax-free.
- Mandatory Independent Legal Advice: For a settlement agreement to be legally binding, you must receive advice from a qualified solicitor. Employers typically pay a non-taxable contribution (usually £500 to £1,500 + VAT) directly to your legal adviser.
- Restrictive Covenants & Confidentiality: If an employer allocates specific monetary consideration for post-termination non-compete clauses, HMRC treats that specific payment as taxable earnings.
8. Company Insolvency & Claiming via the Redundancy Payments Service (RPS)
If your employer goes into liquidation, administration, or bankruptcy and cannot pay your redundancy:
You can claim statutory payments directly from the UK Government's National Insurance Fund via the Redundancy Payments Service (RPS) using Form RP1. The government pays:
• Statutory Redundancy Pay (capped at £700/week and 20 years).
• Up to 8 weeks of unpaid wages (capped at £700/week).
• Statutory notice pay (up to 12 weeks).
• Up to 6 weeks of accrued untaken holiday pay.
Related Salary & Personal Tax Calculators
Statutory Authority Guides
How We Calculated This
- Determine Completed Continuous Service Years: Calculate the total number of full completed continuous years worked for your employer up to the official termination date. Under the Employment Rights Act 1996, you must have a minimum of 2 years continuous service to qualify for statutory redundancy pay, and the calculation counts a maximum of the most recent 20 years.
- Apply 3-Tier Age Multipliers: Count backwards through each completed year of service and apply the statutory age multiplier: 0.5 week's pay for each full year worked while aged under 22; 1.0 week's pay for each full year worked while aged 22 to 40; and 1.5 weeks' pay for each full year worked while aged 41 or older. The total multiplier is capped at a maximum of 30 weeks.
- Apply the Statutory Weekly Pay Cap: Identify your gross weekly pay. If your actual gross weekly pay exceeds the statutory weekly cap (£700.00), your statutory redundancy pay is calculated using the capped rate. If your actual weekly pay is less than £700.00, your actual weekly pay is used.
- Calculate Total Statutory Redundancy Pay: Multiply your total entitlement weeks by your applicable capped weekly rate to determine your gross statutory redundancy entitlement (capped at a statutory maximum of £21,000.00).
- Apply the £30,000 Tax-Free Exemption (ITEPA 2003): Under Sections 401 to 416 of the Income Tax (Earnings and Pensions) Act 2003, the first £30,000 of genuine redundancy pay is 100% exempt from Income Tax and 100% exempt from employee Class 1 National Insurance. Any severance amount exceeding £30,000 is subject to Income Tax at your marginal rate (20%, 40%, or 45%), but remains exempt from employee National Insurance.
- Separate General Earnings & Post-Employment Notice Pay (PENP): Ensure that contractual notice pay (PILON), accrued untaken holiday pay, and bonus payments are separated from redundancy compensation. These items are classified as general earnings and are subject to standard PAYE Income Tax and Class 1 National Insurance deductions.
Real-World Examples
This scenario details the exact step-by-step statutory redundancy calculations for an employee aged 35 with 8 full years of continuous service earning £800.00 gross per week.
Step 1: Employee Details: Age = 35; Continuous Service = 8 Full Years; Actual Weekly Pay = £800.00
Step 2: Calculate Entitlement Weeks:
All 8 years were worked between ages 27 and 35 (falling fully in the 22 to 40 age bracket).
Entitlement = 8 years * 1.0 week/year = 8.0 Weeks
Step 3: Apply Statutory Weekly Pay Cap:
Actual weekly pay (£800.00) exceeds statutory cap (£700.00) -> Capped rate = £700.00
Step 4: Calculate Statutory Redundancy Pay:
8.0 Weeks * £700.00 = £5,600.00
Step 5: Apply £30,000 Tax-Free Exemption:
Total Payout (£5,600.00) is well below the £30,000.00 threshold.
Income Tax Due = £0.00 | Employee National Insurance Due = £0.00
Step 6: Net Take-Home Payout = £5,600.00 (100% Tax-Free)This scenario demonstrates how service years spanning across age 41 are split between the 1.0x and 1.5x statutory multiplier tiers.
Step 1: Employee Details: Age = 48; Continuous Service = 14 Full Years (employed from age 34 to 48); Weekly Pay = £650.00
Step 2: Split Service Across Age Brackets (counting backwards from age 48):
- Tier 1 (Aged 41 and older, ages 41 to 48): 7 full years * 1.5 weeks = 10.5 Weeks
- Tier 2 (Aged 22 to 40, ages 34 to 40): 7 full years * 1.0 week = 7.0 Weeks
- Total Entitlement Weeks = 10.5 + 7.0 = 17.5 Weeks
Step 3: Apply Weekly Rate:
Actual weekly pay (£650.00) is below statutory cap (£700.00) -> Actual rate of £650.00 applies.
Step 4: Calculate Statutory Redundancy Pay:
17.5 Weeks * £650.00 = £11,375.00
Step 5: Apply £30,000 Tax-Free Exemption:
Total Payout (£11,375.00) is below £30,000.00.
Income Tax = £0.00 | Employee NI = £0.00
Step 6: Net Take-Home Payout = £11,375.00 (100% Tax-Free)This walkthrough illustrates how an enhanced executive severance package is taxed above the £30,000 threshold for a 40% Higher Rate taxpayer.
Step 1: Total Severance Package = £65,000.00 (Statutory + Enhanced Ex-Gratia Redundancy)
Step 2: Allocate £30,000 Statutory Tax Exemption (ITEPA 2003):
- Tax-Free Redundancy Portion = £30,000.00 (£0 Income Tax, £0 Employee NI)
- Taxable Severance Portion = £65,000.00 - £30,000.00 = £35,000.00
Step 3: Calculate Income Tax on Taxable Portion (£35,000.00):
Assuming employee is in the 40% Higher Rate Tax Band:
Income Tax Due = £35,000.00 * 0.40 = £14,000.00
Step 4: Calculate Employee National Insurance on Taxable Portion:
Under HMRC rules, genuine redundancy pay is 100% exempt from Employee Class 1 NICs (even above £30k):
Employee NI Due = £0.00
Step 5: Calculate Net Payout Received by Employee:
Tax-Free Portion (£30,000.00) + Net Taxable Portion (£35,000.00 - £14,000.00) = £30,000.00 + £21,000.00 = £51,000.00This walkthrough shows how using employer pension sacrifice on severance above £30,000 completely eliminates a £12,000 tax bill.
Step 1: Total Severance Package Offered = £60,000.00 (Higher Rate 40% Taxpayer)
Step 2: Standard Payout Without Pension Sacrifice:
- First £30,000.00: Paid tax-free = £30,000.00
- Remaining £30,000.00: Taxed at 40% = £12,000.00 tax paid (Net cash = £18,000.00)
- Total Net Cash Received = £48,000.00
Step 3: Optimized Payout With Redundancy Pension Sacrifice:
- First £30,000.00: Paid as tax-free cash directly to employee bank account = £30,000.00
- Excess £30,000.00: Paid directly by employer into employee pension/SIPP as employer contribution
- Employer pension contributions incur 0% Income Tax and 0% NI = £30,000.00 full value in pension pot
Step 4: Financial Comparison:
Total Value Retained = £60,000.00 (£30k Cash in Bank + £30k in Pension Pot)
Total Tax Saved = £12,000.00 instant savingRelated Calculators
Frequently Asked Questions
Is redundancy pay taxable in the UK and what is the £30,000 limit?
Under UK tax law, statutory redundancy payments and any discretionary redundancy packages are exempt from tax up to a maximum limit of £30,000. This means you pay zero Income Tax and zero National Insurance contributions on the first £30,000 of your redundancy payout. Any portion of your redundancy package that exceeds £30,000 is subject to Income Tax at your marginal rate (20%, 40%, or 45%) and is taxed via payroll before the money reaches your account. However, even the taxable portion exceeding £30,000 is completely exempt from National Insurance contributions for both the employee and the employer, representing a tax advantage over standard salary.
Are notice pay and accrued holiday pay tax-free?
No. The £30,000 tax-free exemption applies strictly to redundancy compensation payments. Other payments you receive when leaving a job are subject to standard tax and NI:
- Pay in Lieu of Notice (PILON): HMRC treats PILON as standard earnings. Any payment made for your notice period is subject to standard PAYE Income Tax and National Insurance deductions.
- Accrued Holiday Pay: Any pay received for untaken annual leave is treated as standard salary and taxed fully under PAYE.
- Statutory Redundancy Pay: This is calculated based on your age, length of service (capped at 20 years), and statutory weekly wage limits, and is always included within the £30,000 tax-free threshold.