Redundancy Tax Calculator
Understanding how much tax will I pay on redundancy is essential for knowing what you will actually take home. Different parts of your redundancy settlement are taxed differently, and getting it wrong can mean an unexpected tax bill.
Calculate Tax on Your Redundancy Pay
Use our free redundancy pay tax calculator UK to estimate your tax liability. Enter the different components of your settlement, and we will show you which parts are tax-free and which are taxable.
Estimated Tax Owed
Potential income tax on redundancy package
Payment Breakdown
| Component | Amount | Tax Status |
|---|---|---|
| Statutory redundancy | £5,400 | Tax-free |
| Ex-gratia (within threshold) | £24,600 | Tax-free |
| Ex-gratia (over threshold) | £10,000 | Taxable |
| Holiday pay | £800 | Taxable (PAYE) |
| Total Package | £40,800 |
Tax Calculation
| Tax-free amount | £30,000 |
| Taxable amount | £10,800 |
| Estimated tax (basic rate 20%) | £2,160 |
| Holiday pay tax (via PAYE) | £240 |
| Total Estimated Tax | £2,400 |
Understanding Redundancy Tax
The tax treatment of redundancy payments is governed by the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).
The £30,000 Tax-Free Allowance
The first £30,000 of genuine redundancy pay is completely free from Income Tax and National Insurance. This applies to each redundancy event, not per tax year. You can claim the full exemption multiple times throughout your career. Redundancy tax above £30,000 is charged at your marginal rate.
What Counts Towards the £30k
Only genuine compensation for loss of employment qualifies: Statutory redundancy pay (the legal minimum calculated using age, years of service, and weekly pay capped at £719 from April 2025), Enhanced redundancy pay (additional payments above statutory), and Ex-gratia payments (goodwill payments made purely as compensation for job loss).
What Is Always Taxable
Several payments are fully taxable from the first pound: Notice pay (PILON) is always taxed as earnings since April 2018, whether or not your contract includes a PILON clause. Holiday pay for accrued but untaken holiday is taxed as normal earnings. Bonuses, commissions, and outstanding wages are fully taxable.
PILON and Post-Employment Notice Pay (PENP)
If your contract contains a PILON clause, any payment under that clause is fully taxable through PAYE with National Insurance. Since 6 April 2018, HMRC introduced PENP rules ensuring any payment relating to unworked notice is taxable, even if your contract has no PILON clause. PENP = (Basic Pay x Unworked Notice Days) / Pay Period Days. The PENP amount cannot be included in your £30,000 allowance.
Tax Rate on Excess
Any amount over £30,000 is taxed at your marginal Income Tax rate: Basic rate (£12,571 – £50,270) at 20%, Higher rate (£50,271 – £125,140) at 40%, Additional rate (over £125,140) at 45%. No National Insurance is charged on genuine redundancy payments, even above £30,000.
Frequently Asked Questions
Common questions about redundancy pay and taxation
The first £30,000 of genuine redundancy pay is tax-free. Amounts above £30,000 are taxed at your marginal rate. Notice pay, holiday pay, and bonuses are always fully taxable.
No. Genuine redundancy payments are exempt from employee NI, even above £30,000. However, PILON, holiday pay, and bonuses are subject to NI.
Yes. Since April 2018, the PENP rules mean any payment for unworked notice is taxable, regardless of contract terms.
Limited options exist. Unused personal allowance may help. Some employers offer pension contributions instead of cash, which can be tax-efficient. Seek professional advice for complex situations.
HMRC usually reconciles tax after the tax year ends, sending a P800 with any refund. Complete form P50 if you will not work again before 5 April.
Next Steps
Calculate your total redundancy pay if you have not already, then use the calculator above to estimate your tax liability. Understand your full entitlements with our employee guide.
Read Employee Guide