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The £30,000 rule, explained
Termination payments that are genuinely compensation for losing your job — statutory redundancy pay and ex-gratia sums — are tax-free up to a combined £30,000. Anything above that is taxed as income in the year you receive it, which can push part of it into the 40% band. Pay in lieu of notice (PILON) and holiday pay are treated as ordinary earnings and never count towards the £30,000. If you are near the threshold, the timing and structure of a settlement agreement matters — an employment solicitor can often save more than their fee.
Is statutory redundancy pay capped?
Yes, twice over: a week’s pay is capped (£719 in 2025/26) and only the last 20 years of service count, giving a maximum statutory payment of £21,570 for 2025/26 dismissals.
Do I pay National Insurance on redundancy pay?
Not on the redundancy/ex-gratia element within £30,000. Above £30,000, employer (not employee) National Insurance applies to the excess. Notice pay does attract employee NI as normal earnings.
How redundancy pay is calculated — a worked example
Statutory redundancy pay is built week by week, working backwards from your last day. Each complete year of service earns a fraction of a week's pay depending on how old you were during that year:
| Your age during that year of service | Weeks of pay earned |
|---|
| Under 22 | 0.5 week |
| 22 to 40 | 1 week |
| 41 or over | 1.5 weeks |
Example: an employee leaving at 46 with 14 complete years of service, all after age 32. Nine of those years fall in the 22–40 band (9 × 1 week) and five in the 41+ band (5 × 1.5 weeks), giving 16.5 weeks of pay. Their gross weekly pay is £900, but the statutory cap limits a week's pay to £719 (2025/26), so the statutory payment is 16.5 × £719 = £11,863.50 — tax-free, and counted toward the £30,000 threshold explained below. Enter your own age, service and pay in the UK redundancy pay calculator above; if your employer offers an enhanced scheme, add that amount in the ex-gratia field.
Checking your redundancy package, step by step
- Confirm you qualify: statutory redundancy pay needs at least 2 complete years of service in England, Scotland and Wales.
- Count backwards from your last day, not your start date — only the last 20 years count, and it is your age in each of those years that sets the rate.
- Apply the weekly-pay cap (£719 for 2025/26) if your gross weekly pay is higher.
- Separate the elements: redundancy and ex-gratia pay share the £30,000 tax-free threshold; notice pay (PILON) and holiday pay are taxed as earnings and sit outside it.
- Check the total against the cap: the maximum statutory payment for 2025/26 is £21,570 — anything above that in your package is enhanced or ex-gratia money from your employer.
What if I have less than 2 years of service?
You are not entitled to statutory redundancy pay, but you are still owed your notice pay (or PILON), any accrued but untaken holiday pay, and any enhanced amount your contract or employer offers voluntarily. Those amounts are taxed as normal earnings.
When should my redundancy pay be paid?
Usually on your final payday or on a date agreed in writing with your employer — for settlement agreements, the agreement itself sets the date. If payment is late or missing, raise it with your former employer first, then ACAS early conciliation before any tribunal claim; strict time limits apply (generally three months less a day).
Sources: GOV.UK — calculate your redundancy pay · GOV.UK — redundancy: your rights. Confirm the current weekly-pay cap on GOV.UK before relying on it — caps usually rise each April.