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Is redundancy pay taxable? The £30,000 rule for 2026/27

Enter the payment and your other income to estimate what you keep.

Your employer: Heriot-Watt University announced job cuts on 25 March 2026.

Include PILON, holiday pay, unpaid wages and bonuses.

This and the earnings amount must add up to the total.

PENP and pension (optional)

Statutory redundancy pay is protected from PENP. Leave blank if you have no unworked notice.

Use this instead of calendar days only when the contract's minimum notice is a whole number of months and salary is paid in 12 equal instalments. HMRC then uses P=1 and D in months.

For equal monthly salary with notice not in whole months, enter 30.42. For weekly pay, enter the actual pay-period days, usually 7. Do not use with whole-month notice.

This is T in the PENP formula. Include it in earnings above if part of this payment.

This must be paid into a registered scheme before you receive the cash.

Four worked examples

These examples use 2026/27 rates and show extra Income Tax from the payment, assuming the other income shown.

£15,000 redundancy pay

Other income: £30,000.00. Tax-free: £15,000.00. Income Tax: £0.00. Employee NI: £0.00.

Estimated take-home: £15,000.00

£30,000 redundancy pay

Other income: £40,000.00. Tax-free: £30,000.00. Income Tax: £0.00. Employee NI: £0.00.

Estimated take-home: £30,000.00

£45,000 award with unworked notice

Other income: £40,000.00. Tax-free: £30,000.00. Income Tax: £3,946.00. Employee NI: £111.34.

Estimated take-home: £40,942.66

£80,000 award in Scotland

Other income: £50,000.00. Tax-free: £30,000.00. Income Tax: £21,750.00. Employee NI: £0.00.

Estimated take-home: £58,250.00

This estimates annual Income Tax and one month's NI, not the exact deduction on a final payslip. Tax codes, pay timing and student loan deductions can change the amount received. Read how PAYE is deducted.

Common questions

Is all redundancy pay tax-free?

The first combined £30,000 of qualifying statutory and enhanced termination pay is usually free of Income Tax. Amounts above that are taxed.

What are PILON and PENP?

PILON is pay in place of working notice. PENP is the part of another termination award treated as earnings for unworked notice after taxable PILON is deducted.

Is holiday pay taxed?

Yes. Untaken holiday pay is normally taxed and subject to employee National Insurance like wages.

Can my employer pay some into my pension?

An employer contribution to a registered scheme made before cash payment is generally free of Income Tax and employee NI. Check your annual allowance.

Do Scottish rates apply?

Scottish Income Tax bands apply to taxable non-savings income for Scottish taxpayers. The £30,000 termination threshold and employee NI rules are UK-wide.

Why does my final payslip show more tax?

PAYE uses your tax code and the timing of payment. A payment after your P45 may be taxed under code 0T. The annual tax due may differ.

Can I reclaim overpaid tax?

Yes. If you think too much tax was deducted, contact HMRC or use the appropriate refund process after your employment ends.

Is enhanced redundancy pay taxed?

Genuine enhanced redundancy pay shares the £30,000 threshold with statutory pay. Any PENP is first taxed as earnings.

Does a settlement agreement change the tax?

The label in an agreement does not decide the tax treatment. Wages, notice and qualifying termination awards keep their own rules.

Are benefits taxed?

Non-cash benefits given on termination can use part of the combined £30,000 threshold. Some benefits have separate rules, so ask for a breakdown.

Do student loan deductions apply?

Student loan deductions can apply to taxable earnings such as PILON or holiday pay. This calculator does not estimate them.

Is employee NI due above £30,000?

Employee NI is not due on the qualifying termination award above £30,000. The employer may owe Class 1A NI on that part.