UK Redundancy Pay Calculator 2026/27

How UK statutory redundancy pay works in 2026/27

UK employees with 2+ years of continuous service are entitled to statutory redundancy pay (SRP) if their role is made redundant (Section 135 + 162 Employment Rights Act 1996). The formula:

Weighted weeks × capped weekly pay

where:

• Weighted weeks = service years × age factor:
  • Under 22 at time of redundancy: 0.5 weeks per year
  • Ages 22-40: 1 week per year
  • Age 41+: 1.5 weeks per year
• Capped weekly pay: £751 (2026/27). Was £719 in 2025/26, £700 in 2024/25, £643 in 2023/24. Increased annually each April.
• Service years: capped at 20 (Section 162(2) ERA 1996)
• Maximum statutory redundancy pay 2026/27: 20 × 1.5 × £751 = £22,530

Tax treatment of redundancy payments

Three different tax buckets for redundancy package elements:

1. Statutory + ex-gratia portion - £30,000 tax-free exemption:

The first £30,000 of "termination payment" is tax-free + NI-free under Section 401 ITEPA 2003. This shelter has been static since 1988 (unindexed - real value eroded ~70% since then).

Applies to:

• Statutory redundancy pay (always exempt anyway under Section 309 ITEPA)
• Ex-gratia / enhanced employer redundancy on top of statutory
• Compensation for loss of office
• Damages for unfair dismissal (without prejudice settlements)

Excess above £30,000 taxed as income at marginal rate, NO NI (Section 402D ITEPA 2003).

2. PILON (Pay In Lieu Of Notice) - always taxable:

Pay In Lieu Of Notice paid since 6 April 2018 always treated as EARNINGS (Section 402B ITEPA 2003 - "post-employment notice pay" rules). Taxed in full at marginal rate + employer + employee Class 1 NI.

PILON does NOT use the £30k shelter. Worked example: £50k PILON for a 6-month notice period at higher-rate level = £50k × 40% IT + 2% NI = £21,000 tax + NI.

The 2018 change eliminated the planning loophole where pre-2018 PILON in a "contractual" form could sometimes share the £30k shelter.

3. Pension contribution from termination - tax-efficient:

Employer can pay redundancy proceeds DIRECT into your pension (with your consent). Bypasses the £30k cap entirely. No IT, no NI. Counts toward your Annual Allowance £60k + any carry-forward.

For high earners receiving large redundancy + already maxing AA, this needs careful planning. For most workers, redundancy-to-pension is the most tax-efficient extraction route.

Worked examples for 2026/27

Example 1 - Age 45, 10 years' service, £1,000/week salary:

1. Capped weekly pay: £751
2. Weighted weeks: 10 × 1.5 = 15 weeks (age 45 multiplier)
3. Statutory pay: 15 × £751 = £11,265
4. If employer adds £22,000 enhanced = total £33,265
5. Tax-free: £30,000. Taxable: £3,265
6. At 20% basic-rate IT (if other income £40k/yr) = £653 tax
7. Net: £32,612

Example 2 - Age 55, 25 years' service, £900/week salary:

1. Capped weekly pay: £751
2. Years counted: 20 (capped)
3. Weighted weeks: split (age 41-55 = 1.5x for 15 years + earlier years 1x)
4. Actual calc: only LAST 20 years count, so:
   • Years 1-15 (ages 35-50): 15 × 1 = 15 weeks
   • Years 16-20 (ages 50-55): 5 × 1.5 = 7.5 weeks
   • Total: 22.5 weeks
5. Statutory pay: 22.5 × £751 = £16,898
6. If employer enhanced to £50,000 total:
   • Tax-free: £30,000
   • Taxable: £20,000 at marginal rate (assume higher 40%) = £8,000
   • Net: £42,000

Example 3 - Pension redirection:

• Total redundancy package £80,000
• Direct £50,000 into pension + £30,000 cash
• Tax on cash: £0 (within £30k shelter)
• Tax on pension: £0 (within AA + carry-forward)
• Net: full £80,000 preserved vs ~£60,000 if all taken as cash

Age-related multiplier worked example

Worker aged 51 with 22 years' service - how to count weeks:

But max counted years is 20 - so:

Statutory pay: 25.5 × £751 = £19,151

Eligibility - the conditions

1. Employee status (not self-employed contractor or worker)
2. Continuous service of 2+ years
3. Redundancy genuine (role no longer needed) - not misconduct dismissal
4. Under State Pension Age (66 currently) at redundancy date

Excluded categories:

• Crown servants (different scheme)
• House of Commons + House of Lords staff
• Police
• Armed Forces
• Share fishermen on percentage scheme
• Domestic servants in private households

Genuine redundancy requires the role be eliminated, the workplace closed, or business closed. "Sham redundancy" used to dismiss for performance is unfair dismissal - employee may claim compensation through Employment Tribunal.

Employer obligations + RP1 claim if employer insolvent

Standard process: employer calculates SRP + pays via final payslip. PAYE applied to taxable portion.

Insolvent employer: National Insurance Fund pays SRP via Insolvency Service. Apply via RP1 form (Redundancy Payments Service) within 6 months of redundancy. Payment 6-8 weeks typical. Same £30k tax shelter applies.

Tribunal claim if employer refuses: 3-month deadline to lodge ET1 form. Acas Early Conciliation mandatory first step.

Settlement agreements

Many employers offer settlement agreements (formerly compromise agreements) above statutory minimum in exchange for waiver of all claims. Tax treatment:

• Settlement under £30k: typically structured as termination payment
  • sits within shelter
• Settlement over £30k: excess taxed as income, no NI
• PILON portion: separated + taxed in full per Section 402B
• Ex-gratia portion: within shelter
• Restrictive covenant payments: TAXABLE in full + NI
• Legal fees paid by employer: tax-free up to reasonable amount

Always get specialist employment lawyer review. £500-£2,000 typical solicitor fee (often employer pays). Settlement agreements REQUIRE legal advice to be binding (Section 203 ERA 1996).

Common errors and pitfalls

1. Treating PILON as part of £30k shelter - automatic IT/NI on PILON since April 2018. Tax planning around this is no longer effective.
2. Forgetting 20-year service cap - calculated from end of service backwards, oldest years dropped.
3. Wrong age multiplier - applied at age DURING each year of service, not at termination date.
4. Confusing redundancy with unfair dismissal - different remedies, different tax treatment, different tribunal route.
5. Employer using contractual redundancy scheme below statutory - illegal. Statutory is the floor; contractual must match or exceed.
6. NHS / public sector enhanced schemes - typically MUCH higher than statutory (e.g., NHS scheme: 1 month per year × salary up to 24 months). Don't accept statutory if entitled to enhanced.

When to use this calculator

• Receiving redundancy package: verify employer's calc against statutory minimum
• Considering settlement agreement: compare to statutory + ex-gratia
• Planning retirement around redundancy: redundancy + State Pension
  • drawdown coordination
• Restructuring planning (employer side): understand workforce redundancy cost exposure

Related calculators and guides

• Statutory Redundancy Pay 2026/27 guide - comprehensive guide with employer perspective + insolvency RP1
• Statutory Pay Rates 2026/27 - £751 weekly cap context with SMP / SSP rates
• PAYE + RTI new employer guide - how redundancy flows through final payslip
• Pension contribution calculator - redirect redundancy to pension calculation
• Salary calculator - test post-redundancy income
• UK State Pension guide - coordinating redundancy + State Pension if near retirement
• Self-employed calculator - going self-employed post-redundancy
• Tax investigation guide - high-value redundancy may trigger HMRC review
• Marriage Allowance calculator - reduced income year may unlock MA
• Tax-Free Childcare deep-dive - if redundancy puts you under £100k cliff

Sources

Statutory basis: Employment Rights Act 1996 (Sections 135, 162, 203, 221-229 redundancy mechanics + week's pay calculation), Income Tax (Earnings and Pensions) Act 2003 (Sections 309, 401, 402B, 402D termination payment tax), Insolvency Act 1986 (employer insolvency). 2026/27 weekly cap £751 verified against gov.uk Rates and Thresholds.