UK Redundancy Tax Estimator
Estimate how much of a redundancy payment is tax-free and how much tax might be due (England, Wales, and Northern Ireland income tax bands).
How this redundancy tax calculator works
This calculator gives a quick estimate of the tax impact of a redundancy payment in the UK. It follows the common rule that the first part of qualifying redundancy compensation is tax-free (typically up to £30,000), while any excess is treated as taxable income at your marginal tax rate.
In plain English: the tool compares your income tax bill with and without the taxable part of your redundancy payment. The difference is shown as the estimated tax caused by the redundancy payout.
What counts as tax-free and taxable redundancy pay?
Tax-free portion
Genuine compensation for loss of employment is usually tax-free up to the threshold set by HMRC rules. For many people, that threshold is £30,000.
Taxable portion
Any qualifying redundancy payment above the threshold is generally taxed as income. The tax rate you pay depends on your full yearly taxable income once the redundancy amount is added.
Important distinction
Not all money received at exit is “redundancy compensation.” Some elements are usually fully taxable, including:
- Payment in lieu of notice (PILON)
- Unpaid wages or bonuses
- Accrued but unused holiday pay
Example scenario
Suppose you receive £45,000 redundancy compensation and your other taxable income this year is £28,000. If the threshold is £30,000, then £15,000 is potentially taxable. The calculator estimates how that £15,000 sits inside tax bands and gives your likely extra income tax bill.
Assumptions used in this estimator
- Income tax bands for England, Wales, and Northern Ireland are used.
- Personal allowance reduction is applied where income exceeds £100,000.
- The calculator estimates income tax only (not full payroll treatment for every payment type).
- It assumes your entered “other income” already reflects your taxable income before redundancy.
Ways people sometimes reduce tax impact
1) Pension contributions
Additional pension contributions can reduce taxable income in some circumstances, which may lower higher-rate tax exposure.
2) Timing and tax years
When possible, spreading taxable payments across tax years can keep income out of higher bands. This depends on employer policy and legal agreements.
3) Professional review
A quick review with a qualified tax adviser can be worthwhile, especially for larger settlements or where multiple payment types are involved.
Redundancy planning checklist
- Request a full breakdown of every payment element from your employer.
- Separate true redundancy compensation from wages, notice pay, and holiday pay.
- Estimate tax before agreeing final settlement timing if options exist.
- Keep copies of your P45, final payslips, and settlement agreement.
- Review your tax code and reconcile with HMRC if deductions look incorrect.
Final note
This redundancy tax calculator is for planning and educational use. Tax rules can change, and your exact treatment can vary depending on contract terms and payment structure. For personal advice, speak with HMRC or a licensed tax professional.