hmrc redundancy calculator

How this HMRC redundancy calculator works

Redundancy pay in the UK has two separate parts: (1) the legal minimum your employer must pay if you qualify, and (2) the tax treatment of whatever package you actually receive. This page combines both into one practical estimate.

The statutory calculation follows the standard age-weighted formula used in the UK:

• 0.5 week of pay for each full year of service when you were under 22
• 1 week of pay for each full year of service from age 22 to 40
• 1.5 weeks of pay for each full year of service from age 41+
• A maximum of 20 years of service is counted
• Weekly pay is capped at the statutory weekly limit

If your employer offers an enhanced package above the statutory minimum, this tool also estimates how HMRC may treat it for income tax.

HMRC tax rules: quick guide

For many employees, the key rules are:

• The first £30,000 of qualifying redundancy/termination compensation is normally tax-free.
• Any qualifying redundancy compensation above £30,000 is normally taxable as income.
• Payments such as PILON (pay in lieu of notice), unpaid wages, bonuses, and accrued holiday pay are usually taxable as earnings.
• Student loan, pension, and NI outcomes can vary by payment type and payroll handling.

Payment type	Typical HMRC treatment
Statutory redundancy pay	Usually falls within the £30,000 tax-free termination threshold
Enhanced redundancy compensation	Tax-free up to combined £30,000 threshold, then taxable above that
PILON / notice pay	Normally taxed as earnings through payroll
Holiday pay / salary arrears	Normally taxed as earnings through payroll

Example scenario

Suppose you are 45, with 12 full years of service and weekly pay of £800. If the statutory weekly cap is £700, the calculator uses £700 for the legal minimum calculation. It applies the age-weighted years, then multiplies by capped weekly pay to produce your statutory entitlement estimate.

If your employer then offers a higher overall redundancy compensation amount, the calculator checks how much of that package may exceed the £30,000 tax-free threshold. You also enter separate taxable pay such as PILON to estimate your total post-tax outcome more realistically.

Important limitations and assumptions

1) Full years only

Statutory redundancy calculations are based on complete years of service. Part years are generally not included in the statutory formula.

2) Weekly cap must be up to date

The weekly cap changes over time. This calculator lets you edit it so you can match the correct tax year.

3) Tax estimates use your marginal rate

Real payroll tax can differ due to tax code, month of payment, pension deductions, and multiple income sources. Treat this as a planning estimate.

4) Legal eligibility still matters

Statutory redundancy usually requires employee status and sufficient continuous service. Special rules can apply in some situations.

Checklist before accepting a redundancy package

• Confirm your start date and continuous service years
• Ask for the employer's calculation method in writing
• Check the statutory weekly cap used
• Separate compensation from taxable earnings items (PILON, holiday pay)
• Request a full breakdown of gross and net estimates
• Take professional advice if the package is large or complex

Frequently asked questions

Is all redundancy pay tax-free?

Not always. Qualifying termination compensation is generally tax-free up to £30,000. Amounts above that are usually taxable. Earnings-type items are normally taxable regardless.

Does this tool replace HMRC guidance?

No. It is an educational estimate tool. Always verify figures against official HMRC and employment guidance, and seek advice for your case.

Why might payroll tax be different from this result?

Payroll systems use real-time tax codes and pay-period rules. Your final deduction can differ from a simplified marginal-rate estimate.