How redundancy pay is taxed

Reviewed: September 2026

Redundancy packages often mix tax-free qualifying payments with taxable earnings. Understanding the difference helps you know what you'll actually receive.

The £30,000 exemption

The first combined £30,000 of qualifying termination payments may be paid without income tax or employee NI. This applies to statutory redundancy, enhanced redundancy, and genuine compensation — not to PILON, holiday pay or wages.

What is always taxed

• Payment in lieu of notice (PILON)
• Accrued holiday pay
• Unpaid salary or wages
• Bonuses and commission

Above £30,000

Qualifying payments above £30,000 are taxed at your marginal income tax rate. Employee NI does not apply to the excess redundancy element.