Redundancy Pay UK: How Much Will You Get?

Being made redundant is stressful enough without trying to decode the maths on your settlement letter. Our redundancy pay calculator walks through the statutory formula, applies the tax rules properly, and tells you exactly how much hits your bank account after HMRC has taken its share.

The formula is genuinely simple once you see it written down. Most people overestimate their statutory entitlement (because they forget the £719 weekly cap) and underestimate their tax exposure on PILON and holiday pay (which are taxed and NI'd in full). This guide explains every input and every output so you walk into the HR meeting knowing exactly what to expect.

Contents

• How the statutory redundancy formula works
• The two caps you need to know
• Tax treatment: the £30,000 tax-free limit
• PILON and holiday pay are taxed differently
• Worked example: 20 years of service at age 50
• Enhanced redundancy offers
• Frequently Asked Questions

How the statutory redundancy formula works

Statutory redundancy pay in the UK uses three rates depending on your age during each year of continuous service:

• 0.5 week's pay for each full year you were under 22
• 1 week's pay for each full year you were 22 to 40
• 1.5 weeks' pay for each full year you were 41 or over

The age that matters is the age you were during each year of service, not your age now. So if you're 45 with 20 years of service, you started at 25. Five of those years (ages 41-45) are at 1.5 weeks each; the other fifteen (ages 26-40) are at 1 week each.

You need at least two full years of continuous service with the same employer to qualify for statutory redundancy at all. Below that, your employer can still offer a contractual or enhanced package, but they're not required to.

The two caps you need to know

Two caps shape every statutory calculation:

Service is capped at 20 years. Even if you've been with the company for 35 years, only the most recent 20 count. This is the cap that catches long-tenured workers off guard.

Weekly pay is capped at £719 (2025/26). This is the statutory weekly cap set by the government and updated annually. If you earn £1,500 a week, your statutory calculation still uses £719. The difference between your real earnings and the cap is one of the biggest reasons employers offer enhanced packages: it reflects what you've actually lost, not just what the statutory minimum forces them to pay.

Multiply both caps together and the maximum statutory redundancy payment in 2025/26 is £21,570 (20 years × 1.5 weeks × £719). That's the ceiling for the statutory portion. Anything above is enhanced or contractual.

Tax treatment: the £30,000 tax-free limit

This is where the rules genuinely favour the redundant employee. The first £30,000 of any redundancy payment is tax-free under section 401 of the Income Tax (Earnings and Pensions) Act 2003. It doesn't matter whether the £30,000 is statutory, contractual, or part of an enhanced offer: the first £30k is tax-free, full stop.

Beyond £30,000:

• The excess is taxed at your marginal income tax rate (20%, 40%, or 45% depending on the rest of your income that year).
• The excess is not subject to National Insurance.

So a £50,000 redundancy payment to a higher-rate taxpayer breaks down like this: £30,000 tax-free, £20,000 × 40% = £8,000 in income tax. Take-home from the redundancy payment alone: £42,000.

The £30,000 is per redundancy event, not per tax year. If you're made redundant twice in the same year (rare but possible), each event has its own £30,000 allowance.

PILON and holiday pay are taxed differently

Two other elements often appear on a settlement letter, and both are taxed less generously than the redundancy payment itself:

Pay in lieu of notice (PILON). If your employer pays you for your notice period instead of having you work it, that payment is treated as ordinary salary. It's fully taxable AND subject to National Insurance. Even if your total package is below £30,000, the PILON portion still has tax and NI deducted.

Untaken holiday pay. Same treatment. Any accrued-but-unused holiday is paid out as ordinary earnings: full income tax and full NI.

This is why the calculator separates these out. A £50,000 settlement headline might be £30,000 redundancy (tax-free) + £15,000 PILON (taxed at marginal rate + NI) + £5,000 holiday (taxed + NI). The take-home is significantly less than the headline.

Worked example: 20 years of service at age 50

Let's run a real number through the calculator. Sarah is 50, has 20 years of service at her current employer, earns £700 a week, and is offered the statutory minimum.

Statutory calculation:

• Walking back from age 49 (the age during her most recent year of service), her 20 years cover ages 30 to 49.
• Ages 41-49 = 9 years × 1.5 weeks = 13.5 weeks
• Ages 30-40 = 11 years × 1 week = 11 weeks
• Total: 24.5 weeks × £700 = £17,150

(Her £700 weekly pay sits below the £719 cap, so no further reduction applies.)

Tax:

• £17,150 is below the £30,000 tax-free limit, so the entire amount is tax-free.
• Take-home from redundancy alone: £17,150.

With PILON and holiday added:

• Suppose her employer also pays £6,000 PILON and £1,500 holiday pay.
• PILON: £6,000 × 40% income tax (assuming she'll be a higher-rate taxpayer this tax year) + 2% NI = £6,000 × 0.58 = £3,480 net
• Holiday: £1,500 × 0.58 = £870 net
• Total take-home: £17,150 + £3,480 + £870 = £21,500

The headline package is £17,150 + £6,000 + £1,500 = £24,650 gross. After tax and NI on the non-redundancy portions, she nets £21,500. The £3,150 difference is what HMRC takes.

Enhanced redundancy offers

Many employers, especially in larger companies and unionised sectors, offer enhanced redundancy. Common patterns:

• A multiple of weekly pay (e.g. 4 weeks' pay per year of service instead of 1).
• Removal of the £719 weekly cap (using actual pay instead).
• Removal of the 20-year service cap.

If an enhanced offer is on the table, plug the total amount into the calculator's "Enhanced offer" field. The calculator uses the larger of statutory or enhanced as the redundancy payment, then applies the £30,000 tax-free split as normal.

A useful negotiation tactic: ask whether the offer includes a contribution to your pension. Pension contributions from a redundancy package can sit outside the £30,000 limit if structured correctly, which can reduce the tax bill significantly. Take advice if the package is large enough for this to matter.

Frequently Asked Questions

How is statutory redundancy pay calculated in the UK?

Statutory redundancy pay is the sum of weekly-pay multiples for each year of service. You get 0.5 weeks per year worked aged under 22, 1 week per year aged 22-40, and 1.5 weeks per year aged 41+. Service is capped at 20 years and weekly pay is capped at £719 (2025/26 rate). Maximum statutory payment is £21,570.

Is redundancy pay tax-free in the UK?

The first £30,000 of any redundancy payment is tax-free. Anything above is taxed at your marginal income tax rate (20%, 40%, or 45%) but is not subject to National Insurance. Pay in lieu of notice (PILON) and unused holiday pay are taxed and NI'd in full as ordinary earnings, regardless of the £30,000 threshold.

Do I have to pay National Insurance on redundancy pay?

Statutory and contractual redundancy pay (the lump sum for losing your job) is not subject to National Insurance, even on the portion above £30,000. PILON and holiday pay are subject to NI in full because they're treated as ordinary earnings.

What is the maximum statutory redundancy pay in 2025/26?

The maximum statutory redundancy payment is £21,570: 20 years of service × 1.5 weeks per year × £719 weekly cap. To hit this maximum you need at least 20 years of service and to have been age 41 or older for all 20 of those years.

Can I negotiate a better redundancy package?

Often yes, especially if you have specialist skills, long tenure, or the company is keen to avoid an employment tribunal. Common asks: enhanced multiples (e.g. 2-4 weeks per year instead of 1), removal of the £719 cap, removal of the 20-year cap, an additional pension contribution outside the £30k limit, and/or extended notice period. Understand the statutory floor first so you know what you're negotiating above.