Is Statutory Redundancy Pay Taxable?

The short answer is no — statutory redundancy pay is not taxable, provided your total redundancy payment does not exceed £30,000. But most people receive several different payments at the end of their employment bundled together, and not all of them qualify for the same tax treatment. Understanding the difference matters, because getting it wrong — or allowing your employer to get it wrong — can result in an unexpected tax bill.

The £30,000 tax-free threshold

The first £30,000 of a genuine redundancy payment is exempt from income tax and National Insurance. This exemption covers:

• Statutory redundancy pay
• Enhanced redundancy pay from your employer above the statutory minimum
• Ex-gratia payments made as compensation for losing your job

The maximum statutory redundancy payment is currently £22,530 (from 6 April 2026). If you receive only the statutory amount, you will pay no tax on it regardless of your income level. The exemption is generous enough to cover the statutory maximum entirely.

If your total redundancy payment exceeds £30,000 — for example if your employer pays a significant enhanced package — the amount above £30,000 is subject to income tax at your marginal rate. Importantly, National Insurance is not charged on any part of a genuine redundancy payment, even the portion above £30,000.

What the £30,000 exemption does not cover

This is where most confusion arises. Several payments you receive at the end of your employment are not redundancy pay — they are earnings — and they are taxed in full regardless of the £30,000 threshold.

Notice pay (PILON) is always taxable as normal employment income. Since April 2018, all payments in lieu of notice are subject to income tax and National Insurance, regardless of whether your contract contained a PILON clause. This is one of the most commonly misunderstood points in redundancy taxation. The £30,000 exemption does not absorb your PILON, even if your redundancy pay is well below the threshold.

Accrued holiday pay is taxable as normal earnings. Any untaken holiday owed to you at termination is subject to income tax and National Insurance in the same way as your regular salary.

Bonuses and commission earned before your leaving date are taxable as earnings.

A practical example

Sarah is made redundant and receives a single payment of £18,000 described on her payslip as her "redundancy payment." In reality it breaks down as:

• Statutory redundancy pay: £9,500
• PILON (8 weeks' notice): £6,500
• Accrued holiday pay (10 days): £2,000

Only the £9,500 statutory redundancy element is tax-free. The £6,500 PILON and £2,000 holiday pay — £8,500 in total — are taxable as normal earnings. If Sarah's employer paid the entire £18,000 tax-free, HMRC could pursue the employer for the unpaid tax and National Insurance on the £8,500.

This is why it matters to ask your employer for a written breakdown of every element of your final payment — not just a single figure.

What if the payment pushes you into a higher tax bracket?

The taxable portion of your redundancy package — anything above £30,000, plus your PILON and holiday pay — is added to your other income for the tax year. If the combined total pushes you into the higher rate band (above £50,270 in 2026/27), the excess is taxed at 40% rather than 20%.

If this is likely to affect you, one option worth considering is making a pension contribution from the taxable element. Contributions to a pension reduce your adjusted net income and could keep you within the basic rate band. This is worth discussing with a financial adviser before your final payment is made.

Voluntary redundancy

The tax treatment of voluntary redundancy pay is the same as compulsory redundancy. The fact that you put yourself forward does not change the analysis — provided the payment is genuine compensation for loss of employment, it qualifies for the £30,000 exemption in the same way.

Why your final payslip might look confusing

Employers often pay everything in a single lump sum. When tax is deducted from that combined figure, it can appear as though tax has been taken from your redundancy pay — even when it has actually been deducted from the taxable elements like PILON and holiday pay.

Your employer is also required to use an emergency tax code in some circumstances, which can mean the initial tax deduction is higher than it should be once your full year's income is considered. If you were normally a basic rate taxpayer, you may find you have overpaid tax and are owed a refund. HMRC will usually reconcile this automatically at the end of the tax year, but you can also contact them directly or submit a self-assessment return to claim it sooner.

If you think your employer has taxed your redundancy pay incorrectly

Ask your employer for a written breakdown showing each element of your final payment and the tax treatment applied to each. If you believe the statutory redundancy element has been taxed when it should not have been, raise it with your employer first. If unresolved, HMRC or TaxAid (taxaid.org.uk) can advise on your position.

See our guide on what counts towards your redundancy pay calculation for the full picture on how the statutory figure is worked out, and our guide on PILON vs working your notice for more on how notice pay is taxed differently.