redundancy pay tax calculator

How redundancy pay is taxed in the UK

If you are being made redundant, your payout can include multiple elements: statutory redundancy pay, enhanced redundancy pay, notice pay, holiday pay, bonuses, and possibly a settlement amount. Tax treatment depends on the type of payment, not just the label on your letter.

• Genuine redundancy compensation is usually tax-free up to £30,000.
• Any amount above £30,000 is generally subject to income tax.
• Notice pay and unpaid wages are usually taxed as normal earnings via PAYE.
• Holiday pay and bonuses are also usually taxed as earnings.

What this redundancy pay tax calculator does

This calculator gives you a practical estimate in one place:

• Your statutory redundancy entitlement using age, service years, and a weekly pay cap.
• The tax-free and taxable split of your total package.
• An estimate of extra income tax caused by the taxable redundancy portion.
• Your estimated net payment after tax.

It is designed to help you plan cash flow, compare employer offers, and ask better questions before signing any agreement.

How statutory redundancy pay is calculated

For each full year of service (up to 20 years), UK statutory rules use a multiplier based on your age during that year:

• 0.5 week’s pay for each year under age 22
• 1 week’s pay for each year aged 22 to 40
• 1.5 week’s pay for each year aged 41 and over

Weekly pay is capped for statutory calculations. If your actual weekly wage is above that cap, only the capped amount counts for the statutory minimum.

Quick interpretation tip

If your employer’s offer is less than your estimated statutory minimum, seek guidance quickly. If it is above statutory, the calculator helps you understand whether the extra amount is likely to be taxed and what your take-home might look like.

Important caveats before making decisions

• This tool is an estimate, not legal or tax advice.
• Scottish income tax bands differ from England/Wales/NI bands.
• Your real PAYE result can differ due to tax code changes, benefits, pension salary sacrifice, and payroll timing.
• Settlement agreements may include mixed payment types that are taxed differently.

For large packages or complex exits, ask your payroll team for a line-by-line tax breakdown and speak with a qualified adviser.

Checklist before accepting a redundancy offer

• Confirm your continuous service date.
• Ask for a breakdown: redundancy, notice, holiday, bonus, ex-gratia.
• Check whether any amount exceeds the £30,000 exemption.
• Verify pension and benefit end dates.
• Review any restrictive covenants or settlement clauses.