Is redundancy pay taxed? The £30,000 rule

The short answer

GOV.UK says it plainly: statutory redundancy pay under £30,000 is not taxable. But the money you receive when you leave is often made of several parts, and they are not all treated the same way. GOV.UK calls the whole package a “termination payment”.

Part of your final pay	Income tax	National Insurance
Unpaid wages	Yes	Yes
Holiday pay	Yes	Yes
Bonuses	Yes	Yes
Pay for a notice period you did not work (PILON)	Yes	Yes
Statutory redundancy pay	Not on the first £30,000 (see below)	No; your employer pays Class 1A on any part above £30,000
Enhanced (contractual) redundancy pay	Counts towards the same £30,000	Same as statutory redundancy pay
Payment because injury, illness or disability stops you doing your job	No	No

How the £30,000 rule works

GOV.UK says you do not usually pay tax on the first combined £30,000 of:

• statutory redundancy pay;
• additional severance or enhanced redundancy pay;
• non-cash benefits, for example company property you keep after you leave.

A payment made under a settlement agreement follows the same rules: check which part is compensation and which part is notice pay or holiday pay.

“Combined” is the key word. The £30,000 is not per item: statutory and enhanced redundancy pay are added together. You pay income tax on anything above £30,000. Your employer pays employer National Insurance (Class 1A) on that excess.

Statutory redundancy pay alone cannot reach £30,000. Its maximum is £22,530 for redundancies on or after 6 April 2026 (20 years × 1.5 weeks × £751). The question usually arises only when an enhanced payment is added.

Notice pay is taxed, whatever it is called

This is the part that surprises people. GOV.UK says you pay tax and National Insurance on any payment you receive instead of working your notice period. It may be called pay in lieu of notice (PILON), or simply be part of a severance payment.

If you did not work your full notice, the part of your termination payment equal to what you would have earned during it is taxed like wages. HMRC calls this “post-employment notice pay”. Only what is left can use the £30,000 allowance.

So a single lump sum labelled “redundancy” may be partly taxed as earnings. Ask your employer for a breakdown if your payslip does not show one. The pay in lieu of notice guide explains how notice pay is worked out.

Worked example: £15,478.19 of final pay

These figures put together four separate test cases of the final pay checker, to show each type of payment. All amounts are gross, before tax.

Item	Amount	Taxed like pay?
Wages for the last month	£1,800.00	Yes
Pay in lieu of notice (7 weeks × £600)	£4,200.00	Yes
Holiday pay (3.8849 days × £120)	£466.19	Yes
Statutory redundancy pay (12 weeks × £751)	£9,012.00	No, under £30,000
Total	£15,478.19

Here £6,466.19 is taxed with National Insurance, like normal pay. The £9,012.00 of statutory redundancy pay is not taxed. We do not calculate the tax itself: it depends on your tax code, your other income in the tax year and, in Scotland, Scottish income tax rates.

Second example: three months’ notice paid in lieu

Born 15 May 1980, started on 1 June 2013, paid £3,250 a month. The employer gives notice on 1 July 2026 and ends the job that day, paying the 3 months’ notice in the contract.

• Notice pay: 3 × £3,250 = £9,750.00, taxed with National Insurance.
• Statutory redundancy pay: 15.5 weeks × £750 = £11,625.00, not taxed (under £30,000).

The redundancy figure uses a later date for the calculation, because the statutory notice was not worked. The redundancy pay guide explains why.

Above £30,000: an illustration

Suppose someone receives the maximum statutory redundancy pay, £22,530, and an enhanced payment of £15,000 under their contract, with notice worked and paid separately. Together: £37,530. The first £30,000 is not taxed; income tax is due on the remaining £7,530. Their notice pay, wages and holiday pay are taxed in full, as above.

How the tax is taken

• On your final payslip. Your employer takes tax and National Insurance automatically. GOV.UK says your employer is responsible for taxing your termination payment correctly.
• After your P45. If the payment arrives after you have received your P45, your employer uses the 0T tax code. Tax is then taken as if you had already used your personal allowance for the year, which can mean more tax than expected.
• Too much tax? GOV.UK says to contact HMRC if you think you have paid too much.
• Self Assessment. If you fill in a tax return, include the termination payment under “additional information”.

If your employer is insolvent

If the government’s Redundancy Payments Service pays you, GOV.UK says you pay income tax and National Insurance on unpaid wages and other money you are owed. Its page on what you can get says nothing specific about tax on the redundancy payment itself. See what to do if your employer won’t pay your redundancy pay.

What this guide does not cover

Tax depends on your whole situation in the tax year. This guide does not cover pension contributions in detail (GOV.UK says employer contributions to a registered pension scheme are exempt, within the annual allowance), payments for restrictive covenants, settlement agreements or effects on benefits. HMRC, Citizens Advice or a tax adviser can help with these.

This site covers England, Wales and Scotland. Northern Ireland has its own redundancy rules and weekly cap.

Next steps

1. Check, free. The redundancy pay calculator gives the statutory amount before tax and compares it with what you received. The final pay checker does the same for wages, notice and holiday pay.
2. Claim in writing. If an amount is missing or short, you can prepare a redundancy pay claim letter yourself: £9, or £19 with a dated follow-up letter and reminders.
3. Next step. For the tax itself, contact HMRC. For unpaid amounts, a free Acas preparation sheet lists what Acas will ask, and the early conciliation guide explains the steps. Acas, Citizens Advice or a trade union can also help.