Redundancy Pay UK 2026/27 — Your Rights & Tax Position
Statutory redundancy pay · £30,000 tax-free · Notice pay · What to do next · Updated May 2026
Who qualifies for statutory redundancy pay
To qualify for statutory redundancy pay (SRP), you must:
Be an employee (not self-employed, a worker, or a director without an employment contract)
Have worked continuously for your employer for at least 2 years
Have been made redundant — i.e. your job is disappearing, not dismissed for misconduct or performance
Zero-hours and part-time workers: Both qualify for SRP if they meet the 2-year continuous service requirement. Your weekly pay for the calculation is based on average earnings over the previous 12 weeks.
You do not qualify if you: resign voluntarily, are dismissed for misconduct, or are on a fixed-term contract that simply expires (unless the contract is not renewed and amounts to a redundancy).
How statutory redundancy pay is calculated
SRP is calculated using three factors: your age, your length of service (up to 20 years), and your weekly pay (capped).
Age during each year of service
Weeks' pay per year
Under 22
½ week
22–40
1 week
41 and over
1½ weeks
Weekly pay cap: Weekly pay is capped for SRP purposes. The cap was £643/week for 2025/26. The 2026/27 cap is reviewed each April — check gov.uk for the current figure. The maximum statutory payout is 30 weeks × the weekly cap.
Worked example
Scenario
Detail
SRP
Age 35, 8 years' service, £800/wk pay
8 × 1 week × £643 cap (pay exceeds cap)
£5,144
Age 45, 12 years' service, £600/wk pay
12 × 1.5 weeks × £600 = 18 weeks × £600
£10,800
Age 50, 20 years' service, £500/wk pay
20 years max; 41+ years get 1.5wk; 22-40 get 1wk
Calculated below
For the age-50, 20-year example (assuming they started at 30): service aged 22–40 = 10 years × 1 week = 10 weeks; service aged 41–50 = 10 years × 1.5 weeks = 15 weeks. Total = 25 weeks × £500 = £12,500.
The tax treatment of a redundancy package depends on what type of payment each element is:
Payment type
Tax
National Insurance
Statutory redundancy pay (first £30k of total package)
0% (tax-free)
0%
Contractual/enhanced redundancy (first £30k of total)
0% (tax-free)
0%
Redundancy payment above £30,000
Income tax at marginal rate
0% (no NI)
Notice pay (worked or PILON)
Income tax at marginal rate
NI applies
Accrued holiday pay
Income tax at marginal rate
NI applies
Ex-gratia payment within £30k limit
0% (tax-free)
0%
The £30,000 rule: The entire redundancy payment — statutory plus any enhanced/contractual element — must not exceed £30,000 to be tax-free. It is the total qualifying termination payment, not just the statutory part, that is measured against the £30,000 threshold. Payments above £30,000 attract income tax (but crucially, not employee or employer NI).
Worked example — redundancy tax
Payment
Amount
Tax treatment
Statutory redundancy pay
£8,000
Tax-free (within £30k)
Enhanced redundancy payment
£24,000
Tax-free (within £30k — total £32k)
Amount above £30k threshold
£2,000
Taxable at marginal rate
3 months' notice pay (PILON)
£9,000
Fully taxable + NI
Accrued holiday pay
£1,500
Fully taxable + NI
Notice pay and garden leave
Your notice entitlements are separate from your redundancy payment:
Statutory minimum notice: 1 week per year of service, up to 12 weeks (after 12 years). Contractual notice may be longer.
Payment in lieu of notice (PILON): If your employer pays your notice period rather than having you work it, this is fully taxable as earnings (even if your contract didn't include a PILON clause — legislation from 2018 changed this).
Garden leave: You remain employed during the notice period but don't attend work. Salary continues and is taxable as normal earnings.
Contractual vs statutory redundancy pay
Your employer may offer more than the statutory minimum — this is called enhanced or contractual redundancy pay. Common enhancements include:
More generous multipliers (e.g. 2 weeks per year rather than 1)
Higher weekly pay cap (uncapped rather than the statutory £643 cap)
Longer qualifying service (counting service beyond 20 years)
Additional ex-gratia payments for agreeing to leave terms
All of these count toward the same £30,000 tax-free threshold. Enhanced terms are commonly negotiated — particularly if you are signing a settlement agreement that waives employment tribunal rights.
What to do after redundancy
Emergency fund first. Before anything else, ensure you have 3–6 months of essential expenses in accessible savings. If your fund was depleted, top it up before paying off debts or investing.
Claim benefits if eligible. If you're not immediately starting a new role, check entitlement to Universal Credit. The redundancy payment itself doesn't affect UC entitlement in the first instance, though capital rules apply over time.
Consider a pension contribution. Redundancy payments up to £30,000 are tax-free but can still be contributed to a pension up to the level of your earned income in the tax year. If you receive redundancy in April–May, you still have most of the tax year to earn income and contribute.
Pay off high-interest debt. Credit card balances at 20%+ are a guaranteed 20% return — clearing them beats most investment returns.
Use your ISA allowance. Any lump sum left after the above is tax-efficiently sheltered in a Stocks & Shares ISA (up to £20,000 this tax year).
Review your tax position. If you were employed for only part of the tax year, you may have overpaid income tax through PAYE. Submit a tax return or contact HMRC for a refund.
Statutory redundancy pay is calculated using your age and length of service (maximum 20 years): ½ week's pay per year worked under age 22; 1 week's pay per year aged 22–40; 1½ weeks' pay per year aged 41 and over. Weekly pay is capped (£643/week for 2025/26). Maximum payout is 30 weeks × the weekly cap. Use our redundancy pay calculator for your exact figure.
The first £30,000 of a genuine redundancy payment (statutory plus any enhanced element) is completely tax-free and exempt from National Insurance. Amounts above £30,000 are subject to income tax at your marginal rate, but still exempt from NI. Notice pay and accrued holiday pay are always fully taxable as earnings and subject to NI, regardless of the total package size.
You need at least 2 years of continuous employment with the same employer. This applies to full-time and part-time employees. Self-employed workers and genuine contractors are not entitled to statutory redundancy pay.
Priority order: (1) emergency fund (3–6 months' expenses), (2) pay off high-interest debt, (3) pension contributions (tax-efficient if you still have earned income in the tax year), (4) ISA up to £20,000. Avoid illiquid or speculative investments while your employment income is uncertain. If you're considering going self-employed, our self-employed tax calculator shows what to expect.