UK Redundancy Tax Calculator
Estimate your statutory redundancy pay, how much may be tax-free, and the likely income tax on taxable elements of your termination package.
Assumptions: England/Wales/Northern Ireland income tax bands, £30,000 redundancy tax exemption, and no National Insurance modelling. This is an estimate only.
How redundancy tax works in the UK
If you are being made redundant, one of the biggest questions is: how much tax will I actually pay? In the UK, redundancy packages can include several parts, and each part is taxed differently.
- Statutory redundancy pay (and many true compensation payments) can be tax-free up to a combined £30,000.
- PILON (payment in lieu of notice) is normally taxed like salary.
- Holiday pay is taxed like salary.
- Any amount above £30,000 on qualifying compensation is taxable.
What this calculator includes
This redundancy tax calculator UK tool gives you a practical estimate by combining two steps:
1) Statutory redundancy estimate
It estimates statutory redundancy pay using your age, full years of service, and a weekly pay cap. UK statutory calculations use age-weighted multipliers:
- 0.5 week per full year under age 22
- 1 week per full year between ages 22 and 40
- 1.5 weeks per full year age 41 and over
Only up to 20 years of service are counted for statutory redundancy calculations.
2) Tax estimate on termination package
The calculator then applies the £30,000 exemption to qualifying redundancy compensation and estimates additional income tax on any taxable elements based on your annual income.
Example of redundancy tax treatment
Imagine your package includes:
- Statutory redundancy pay: £12,000
- Enhanced redundancy payment: £10,000
- PILON: £4,000
- Holiday pay: £1,000
Your qualifying compensation is £22,000 (statutory + enhanced), so all of that may be covered by the £30,000 exemption. The PILON and holiday pay are still taxable. Your final tax result depends on your total income for the tax year and your marginal rate.
Important points before relying on any estimate
Tax status depends on payment type
Employers should provide a breakdown in your settlement letter or final payslip. That breakdown is crucial, because an item labelled “redundancy” may still be taxable if it is really earnings.
National Insurance may apply
This calculator focuses on income tax. In practice, some taxable components (especially earnings-like payments) can also attract National Insurance contributions.
Your personal circumstances matter
Student loan deductions, pension contributions, benefits, Scottish tax bands, and tax code changes can affect your exact take-home amount. Treat online tools as planning aids, not formal tax advice.
How to use this estimate in real life
- Request a full written breakdown of your termination package.
- Separate tax-free compensation items from taxable earnings items.
- Check your expected annual taxable income for the tax year.
- Run multiple scenarios (for example, different payment dates or pension contribution choices).
- If your package is large, consider speaking with a qualified UK tax adviser.
Frequently asked questions
Is all redundancy pay tax-free in the UK?
No. Only qualifying termination compensation is usually tax-free up to £30,000. Taxable earnings elements are not covered by that exemption.
Is PILON tax-free?
Usually no. PILON is generally taxed as normal earnings and is not part of the £30,000 tax-free exemption.
Does length of service always increase statutory redundancy pay?
It helps, but only up to 20 full years count for statutory redundancy calculations, and weekly pay is capped for statutory purposes.
Final thought
A redundancy payment can be a financial reset point. Knowing the likely tax outcome helps you plan your emergency fund, debt repayment, and next steps with confidence. Use the calculator above to get a quick estimate, then confirm details with your employer payroll team or a professional adviser.