Redundancy pay 2026 — exactly how much you are owed and what is tax-free

Being made redundant is stressful enough without having to calculate complicated figures under pressure. This guide explains exactly what you are legally entitled to, how to check if your employer has paid you correctly, and what happens to tax on your redundancy payment.

Statutory redundancy pay 2026/27 — the basic rules

To qualify for statutory redundancy pay, you must have been continuously employed by the same employer for at least two years. If you meet this requirement, your statutory redundancy pay is calculated using a formula based on three factors:

• Your age
• Your length of service (capped at 20 years)
• Your weekly pay (capped at £751/week from April 2026)

The formula gives you a number of "weeks" pay per year of service, depending on your age:

• Under 22: Half a week's pay per year of service
• 22 to 40: One week's pay per year of service
• 41 and over: One and a half week's pay per year of service

The maximum statutory redundancy pay from April 2026 is £22,530 (20 years × 1.5 weeks × £751).

Is redundancy pay tax-free?

This is where many people get confused. The answer is: it depends on the total amount.

• The first £30,000 of any redundancy payment is completely tax-free and does not incur National Insurance.
• Any amount above £30,000 is taxed as income in the year you receive it.

Crucially, the £30,000 limit covers all elements of your redundancy package that count as "termination payments" — not just the statutory element. This includes:

• Statutory redundancy pay
• Enhanced (above-statutory) redundancy pay your employer may offer
• Ex-gratia payments

However, notice pay and holiday pay are NOT included in the £30,000 exemption — these are taxed as normal employment income.

What about notice pay?

Separately from redundancy pay, you are also entitled to notice pay. The legal minimum notice periods are:

• 1 week per year of service, up to a maximum of 12 weeks (e.g., 10 years' service = 10 weeks' notice)
• Your employment contract may specify a longer notice period

Notice pay is fully taxable as employment income. If your employer pays you in lieu of notice (PILON), this is also fully taxable. Use our redundancy final pay calculator to see the complete picture including notice pay and holiday pay.

Unused holiday on redundancy

Any accrued but untaken holiday at the point of redundancy must be paid out. This is calculated based on your daily rate multiplied by the number of days owed. Holiday pay is fully taxable as normal employment income.

If you are on a zero-hours contract or have variable hours, your holiday pay should be based on your average pay over the past 52 weeks — not just your contracted hours. Check our holiday pay calculator to verify the figure.

What if my employer offers more than the statutory minimum?

Many employers — particularly larger companies and public sector organisations — offer enhanced redundancy pay that is more generous than the statutory formula. This is often tied to your employment contract or a collective agreement. Even with enhanced packages, the first £30,000 combined remains tax-free.

If you are unsure whether your employer's offer is at least the statutory minimum, use our calculator first. If the offer is below the legal minimum, your employer is breaking the law and you should contact ACAS (0300 123 1100) or an employment solicitor.

Redundancy and pension contributions

The statutory redundancy pay and enhanced amounts (up to £30,000) cannot normally be paid into a pension to reduce the taxable element — HMRC treats termination payments differently from earnings for pension relief purposes. However, your notice pay (which is taxable earnings) can be salary-sacrificed into a pension if your employer's scheme rules allow it. Seek independent financial advice on this.

What to do if you are made redundant

1. Request a written breakdown of your redundancy package from your employer
2. Check the calculation against our redundancy calculator
3. Confirm your notice period and whether you are being paid in lieu
4. Check your P45 is issued promptly (your employer is required to provide it without unreasonable delay)
5. If you are entitled to a tax refund due to leaving partway through the year, check using our tax rebate calculator

Frequently Asked Questions

Can I be made redundant if I am pregnant or on maternity leave?

You have enhanced protection against redundancy during pregnancy and maternity leave. If your role is at risk of redundancy while you are pregnant or on maternity leave, you have a legal right to be offered any suitable alternative vacancy before other employees. Being selected for redundancy because of pregnancy or maternity leave is automatically unfair dismissal. Contact ACAS or an employment solicitor immediately if this happens.

My employer is insolvent — will I still get my redundancy pay?

Yes. The government's Redundancy Payments Service (RPS) steps in when an employer becomes insolvent and cannot pay. The RPS will pay your statutory redundancy, notice pay (up to 8 weeks), and unpaid wages (up to 8 weeks). There is an upper limit on the weekly pay rate (£751 in 2026/27). Claims can be made through GOV.UK.

I have worked for two years and one month — do I qualify?

Yes. Two complete years of continuous employment is the threshold. You qualify for one year of service entitlement for each complete year worked (partial years do not count). At two years and one month, you have two complete years and receive two years' worth of the formula.

My employer is calling it 'voluntary redundancy' — is that different?

Voluntary redundancy is when you choose to accept a redundancy package when your employer is looking for volunteers. Your entitlements are the same as compulsory redundancy — the statutory formula applies and the £30,000 exemption still applies. Voluntary packages are often more generous than the statutory minimum.

Does redundancy pay count as income for Universal Credit or other benefits?

The first £30,000 of redundancy pay is not counted as income for tax purposes, but the DWP treats it as capital for benefit purposes. This means if your redundancy pay (combined with other savings) takes you over £16,000 in capital, you will not qualify for Universal Credit. Below £6,000 it is fully ignored; between £6,000 and £16,000 it is counted as notional monthly income at £1 per £250. Use our Universal Credit calculator to check your position.