UK Statutory Redundancy Pay: 2026/27
UK Statutory Redundancy Pay (2026/27): Complete Guide + £30k Tax-Free Rule
Comprehensive guide for UK employees + employers facing redundancy in 2026/27. £751/week weekly pay cap from April 2026 (up from £719). Age-based formula: 0.5 / 1.0 / 1.5 weeks per year of service. 20-year service cap. £30,000 tax-free under Section 401-403 ITEPA 2003. PILON post-2018 fully taxable (Section 402D). Consultation requirements (Section 188 TULRCA 1992). Pension-sacrifice route bypasses £30k limit entirely. 4 worked scenarios across age + service profiles. Insolvent-employer Redundancy Payments Service backstop.
2026/27 statutory redundancy framework
Weekly pay cap
£751
Up from £719 in 2025/26. CPI-uprated annually.
Service cap
20 years
Max 20 years count. Long service post-20 ignored.
Tax-free limit
£30,000
Section 401-403 ITEPA 2003. Applies to statutory + ex-gratia combined.
Age-based formula (Section 162 ERA 1996)
| Age during year of service | Weeks per year | Effective maximum (over 20 years) |
|---|---|---|
| Under 22 | 0.5 | 10 weeks max (rare - need 20 years started young) |
| 22-40 | 1 | 20 weeks max if all 20 years in this band |
| 41+ | 1.5 | 30 weeks max (theoretical maximum) |
Statutory pay = Σ (weeks per year × weekly pay capped at £751). Theoretical maximum: 20 years × 1.5 weeks × £751 = £22,530. Service years bin by age in EACH year of service - so a 50-year-old with 30 years service has some years at 1.0 (when they were 22-40) + most years at 1.5 (when they were 41+), capped at the 20 most recent years.
4 worked redundancy scenarios
| Scenario | Statutory pay | + Ex-gratia | Tax-free | Taxable | Net (incl PILON) |
|---|---|---|---|---|---|
| Mid-career 30-something Age 35, 8 yrs, £700/wk + £2000 PILON + £0 ex-gratia All 8 years at 1× factor (age 22-40 band). Weekly pay under £751 cap = full pay used. | £5,600 | £0 | £5,600 | £2,000 | £6,760 |
| Long-service 50-something Age 55, 22 yrs, £900/wk + £5000 PILON + £10000 ex-gratia 20-year service cap applies. Mix of factors: ~5 years pre-41 at 1× + ~15 years at 1.5×. Weekly pay above £751 cap. | £20,277 | £10,000 | £30,000 | £5,277 | £33,061 |
| High earner, recent role Age 45, 3 yrs, £1500/wk + £12000 PILON + £30000 ex-gratia Short service - 3 years at 1.5× (over 41). Weekly pay heavily capped at £751. | £3,380 | £30,000 | £30,000 | £15,380 | £38,920 |
| Older long-server Age 60, 30 yrs, £600/wk + £2500 PILON + £5000 ex-gratia 20-year cap engaged (5 unused years), all 20 at 1.5× factor. Weekly pay under cap. | £17,700 | £5,000 | £22,700 | £2,500 | £24,150 |
"Net (incl PILON)" estimates assume 40% higher-rate marginal on the taxable amount including PILON. Actual rate may differ (basic-rate, additional-rate, PA-taper zone). PILON is fully taxable as employment earnings under Section 402D ITEPA - doesn't qualify for the £30k exemption regardless of how the employer labels it.
PILON tax change - Section 402D ITEPA 2003
From April 2018, Payment In Lieu Of Notice (PILON) is FULLY taxable as employment earnings, subject to Income Tax + NI. The Finance (No.2) Act 2017 closed the previous loophole where some PILONs were structured to fall within the £30k tax-free amount.
PENP (Post-Employment Notice Pay) formula: PENP = (basic pay in the last 4 weeks before notice given) × (unworked notice days / number of days in the last 4 weeks). PENP is fully taxable. Any ex-gratia amount ABOVE PENP can still qualify for the £30k exemption. Practical implication: structure your redundancy package with a clear separation between (a) taxable PILON / PENP portion + (b) tax-free statutory + ex-gratia portion. Employer should provide a written breakdown showing both. Don't accept "lump sum redundancy of £X" without itemisation - the tax treatment depends on the categorisation.
Pension sacrifice route - bypassing the £30k cap
For employees over age 55 (rising to 57 from April 2028), redundancy ex-gratia payments can be sacrificed directly into a pension - escaping BOTH the £30k limit AND the above-£30k taxable portion. The pension contribution is taxable to neither side; 100% goes into pension.
Worked example for higher-rate employee: £100,000 total redundancy (£25k statutory + £75k enhanced). Take as cash: £30k tax-free + £70k taxable at 40% + 2% NI = £29.4k tax. Net £70.6k cash. Sacrifice £70k enhanced portion into pension: £30k tax-free cash + £70k pension contribution. Total benefit £100k vs £70.6k cash route. Tax saved: £29.4k. Constraints: must be over 55 (or 57 from 2028); employer must agree to direct pension contribution before payment crystallises; Annual Allowance £60k limit (excess triggers AA charge unless carry-forward available from previous 3 years - up to £240k stacked). See our max pension contribution calculator + PCLS guide.
Frequently asked questions
What is the statutory redundancy pay rate for 2026/27?
£751/week weekly pay cap from 6 April 2026 (up from £719 in 2025/26, uprated by CPI September figure). 20-year service cap (Part XI Employment Rights Act 1996). Age-based formula: 0.5 weeks pay per year of service for years worked aged under 22; 1.0 week pay per year for years aged 22-40; 1.5 weeks pay per year for years aged 41+. Maximum statutory entitlement: 20 years × 1.5 weeks × £751/week = £22,530 (theoretical maximum, requires 20+ years all worked at 41+). All statutory redundancy is tax-free up to £30,000 under Section 401-403 ITEPA 2003. Statutory redundancy is the MINIMUM employers must pay; many enhance via "contractual redundancy" terms in employment contracts or one-off "settlement agreements".
Who is eligible for statutory redundancy pay?
Three conditions ALL required (Sections 135-138 + 155-181 ERA 1996). (1) Employee status: must be an employee (not self-employed contractor, not casual worker without employee status). (2) 2+ years continuous service: minimum 2-year qualifying period ending at the dismissal date. Service includes statutory leave (maternity, paternity, sick leave, jury service). (3) Genuine redundancy: dismissal must be for "redundancy" reasons - the role/work has reduced or ceased (Section 139 ERA 1996). NOT eligible: dismissal for misconduct, capability, or performance reasons (those are different unfair-dismissal claims). NOT eligible: voluntary departure unless agreed as genuine redundancy. Age: no upper age limit (Age Discrimination changes in 2011 removed retirement-age cap on redundancy). Minimum age: 16 (some sectors require 18). UK-domiciled: redundancy provisions apply to UK-based employment, regardless of citizenship.
How is the age-based formula applied?
Service is "binned" by the age you were during each year of service. Worked example: 50-year-old employee with 22 years of service. Years aged 28-40 (years 0-12 of service): 12 years × 1.0 week = 12 weeks. Years aged 41-49 (years 13-21 of service): 9 years × 1.5 weeks = 13.5 weeks. Year aged 50 (most recent year): 1 year × 1.5 = 1.5 weeks. Service cap: 22 years would be capped at 20 - so you'd take the OLDEST years out of calculation. With 22-year-cap reduction: 20 most recent years used = mostly post-41 at 1.5×. Total = ~28 weeks × weekly pay (capped at £751). The "look-back from current age" method is the standard HMRC calculation under ERA 1996 Section 162. Sometimes results in slightly different numbers vs the "look-forward from start age" method - employers should use the gov.uk Statutory Redundancy Pay calculator for accurate results.
Is redundancy pay tax-free?
The first £30,000 is tax-free for GENUINE redundancy payments under Section 401-403 ITEPA 2003. This includes statutory redundancy + any contractual enhanced redundancy + ex-gratia "thank you" payments. The £30,000 limit is per termination (not per tax year) - one employee, one termination = one £30k exemption. Above £30,000: taxed as employment income at marginal rate via PAYE. Worked example: £50,000 total redundancy package. £30k tax-free + £20k taxable at marginal rate (40% higher-rate) = £8k tax. Net £42k. NOT covered by £30k exemption: PILON (Payment In Lieu Of Notice) is fully taxable as earnings (Section 402D ITEPA, post-April-2018); contractual bonuses owed; unpaid salary for last work period; outstanding holiday pay; benefits-in-kind. The £30k exemption applies BEFORE these taxable amounts are calculated. Smart structuring: maximise statutory + contractual redundancy within £30k tax-free; document PILON separately as it's fully taxable regardless.
What about PILON (Payment In Lieu Of Notice)?
PILON is the cash equivalent of the contractual notice period that the employer pays out instead of requiring the employee to work the notice. Post-April-2018 (Finance (No.2) Act 2017, Section 402D ITEPA 2003): ALL PILON is fully taxable as employment earnings, subject to Income Tax + NI. The previous loophole - where some PILONs could be "structured" to fall within the £30k tax-free amount - was closed. Now if the employee had a contractual right to notice (PENP - Post-Employment Notice Pay - test), the PILON portion equivalent to that notice is fully taxable as earnings. The PENP formula: PENP = (basic pay in the last 4 weeks before notice) × (unworked notice days / number of days in the last 4 weeks). PENP is fully taxable; any "ex-gratia" amount above PENP can still qualify for the £30k exemption. This means most modern redundancy packages have a clear taxable PILON component + a separate £30k-eligible ex-gratia component. Employees should request the calculation breakdown in writing.
Can I get more than the statutory minimum?
Yes - "enhanced redundancy" is contractual and depends on the employment contract or settlement negotiation. Contractual enhanced redundancy: many employers (especially larger ones) have policies offering 2-4× statutory rates, or higher weekly pay caps (no £751 cap). Public sector schemes are often particularly generous. Settlement agreement enhanced: one-off bargaining for redundancy. Employer often willing to pay 1-3 months extra salary to avoid Employment Tribunal claims. Settlement agreements require: (a) the employee to receive INDEPENDENT LEGAL ADVICE (paid for by employer, typically £500-£1,500); (b) be in writing; (c) clearly state which claims are being settled (Section 203 ERA 1996). The negotiation typically focuses on: monetary amount, references (clean reference often more valuable than extra cash), notice period treatment, pension contributions, return of equipment, restrictive covenants. Employer can refuse a settlement agreement and just stick to statutory - but if there's any unfair-dismissal or discrimination concern, settlement usually beats litigation.
What is the consultation requirement?
Section 188 Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) requires collective consultation for proposed redundancies: 30 days BEFORE first dismissal if 20-99 redundancies at one establishment in 90 days; 45 days BEFORE if 100+ redundancies. Failure to consult: protective award of up to 90 days' pay per affected employee. Employees can be consulted via "appropriate representatives" - existing recognised trade union, elected employee representatives. Individual consultation: even for SINGLE redundancies, the law requires meaningful individual consultation including: (a) explaining the business reason; (b) considering alternative roles (suitable alternative employment); (c) considering volunteer applications; (d) ensuring scoring matrices are fair if multiple roles in the pool. Failure: unfair dismissal claim. HR1 form: employer must also notify the Insolvency Service (Section 193 TULRCA) of redundancies above the threshold - HR1 form, advance of the consultation period. From January 2025 the consultation threshold counts redundancies across the WHOLE UK business (not just per-establishment), under R (Lyttle) v UK Coal [2025] - a significant change for multi-site employers.
Can I claim Universal Credit during redundancy?
Yes if eligible. UC has no minimum redundancy threshold - claim from first day of unemployment. Application via gov.uk/apply-universal-credit. Interaction with statutory redundancy: the redundancy lump sum CAN affect UC differently from your salary. The first £6,000 of "capital" (savings + redundancy lump sum cumulative) is ignored for UC means test. £6,000-£16,000 reduces UC by £4.35/month per £250 of capital above £6k. Above £16,000: NO UC entitlement until capital falls below £16k. So a £30k redundancy lump sum: spend it down to £16k before UC eligibility begins, then taper applies until £6k. Practical implication: redundancy lump sum often delays UC eligibility by 6-12 months. Statutory redundancy paid as separate lump sum from PILON / final salary is CAPITAL once received; salary / PILON portions paid through payroll count as EARNINGS in the period received and reduce UC under the standard earnings taper (55% of earnings reduce UC). New Style Jobseeker's Allowance: contributions-based, time-limited 182 days, ignores capital but requires sufficient NI record in the last 2 tax years.
Should I sacrifice my redundancy into pension?
Yes if you're over 55 (rising to 57 from April 2028) and want to maximise tax-free benefit. Mechanism: employer pays the ex-gratia + enhanced redundancy directly into your pension instead of to you. The sacrificed amount is then FULLY tax-free (escapes both the £30k limit AND the above-£30k taxable portion). 100% goes into pension. Worked example for higher-rate employee: £100k total redundancy package. Take as cash: £30k tax-free + £70k taxable at 40% (assume entire higher-rate) = £28k tax. Net £72k cash. Sacrifice £70k into pension: £30k tax-free cash + £70k pension contribution. £30k cash + £70k pension (tax-free growth, 25% PCLS tax-free later) = £100k effective benefit. Saves the £28k tax. Constraints: must be over 55 to access pension (don't sacrifice if you're younger and need the cash). Annual Allowance £60k limit - excess above £60k may trigger AA charge. Carry-forward of unused AA from previous 3 years can stack up to £240k of contribution. Employer must agree - sacrifice must be arranged BEFORE the contractual right to the payment crystallises. See max pension contribution calc.
What is "suitable alternative employment"?
Section 141 ERA 1996. If your employer offers you SUITABLE ALTERNATIVE EMPLOYMENT before the redundancy date, you may LOSE your statutory redundancy entitlement if you UNREASONABLY refuse. Factors: same/similar pay, similar location (within reasonable commute), similar status / responsibilities, similar working conditions. The "trial period" of 4 weeks lets you try the alternative role without losing redundancy rights - if you decide the role is unsuitable during the trial, you can still claim redundancy. Reasonable refusal grounds: significant pay cut, significant commute increase (typically >30 minutes additional each way), demotion in status, different shift pattern materially worse, health / family reasons. The "reasonableness" test is judged objectively + with reference to the individual's circumstances (e.g. childcare requirements). Tribunal-tested cases: a 30% pay cut typically unreasonable to refuse; 10% pay cut typically reasonable refusal. Each case fact-specific. Document your refusal reasons in writing - this protects your statutory redundancy claim.
What records does the employer need?
Employer must maintain records of: (1) Calculation of statutory redundancy entitlement (years × age-band factor × weekly pay capped at £751); (2) Confirmation of dismissal reason (genuinely redundancy); (3) Consultation records (collective + individual); (4) Suitable alternative employment offers + refusals; (5) Settlement agreement (if applicable) + independent legal advice receipt; (6) Payment record showing breakdown of statutory / contractual / PILON / accrued holiday / outstanding bonus / ex-gratia portions; (7) PENP calculation showing PILON taxable amount; (8) HR1 notification to Insolvency Service if applicable. Keep 6 years after termination (Section 12B TMA 1970 records limit). Employer also issues P45 (final payroll) + P11D (if any taxable benefits accrued in the leaving year). Employees should receive: written redundancy notice with reasons, calculation breakdown, payment details, PENP breakdown showing taxable portion. Common error: employers conflate statutory + contractual redundancy without breakdown - request itemised statement.
What if my employer goes insolvent?
The Redundancy Payments Service (RPS, part of the Insolvency Service) covers statutory redundancy when the employer cannot pay. Eligibility: company has formally entered insolvency (administration, liquidation, receivership) AND has not paid the statutory redundancy. Apply via gov.uk's online RP1 form. Payments: statutory redundancy up to the £751/week cap, capped at 8 weeks of unpaid wages, up to 6 weeks of unpaid holiday, statutory notice pay, basic award for unfair dismissal (if applicable). Maximum total payout from RPS: ~£15-£25k typical. Higher-paid employees lose any contractual enhanced redundancy above statutory (the company's contractual promise becomes an unsecured creditor claim - usually pays pence in the pound). Payment from RPS typically takes 3-6 weeks. Tax treatment: RPS payments follow the same £30k tax-free rule for statutory redundancy + PENP fully taxable for PILON portion. RPS is funded by the National Insurance Fund - effectively a state-backed safety net for redundancy claims. Common in retail / hospitality / construction insolvencies.
Related calculators and guides
- Statutory redundancy calculator - interactive age + service + weekly pay calculator.
- Bonus tax 2026/27 worked examples - similar marginal-rate stacking math for ex-gratia.
- Max pension contribution calc - £60k AA + carry-forward for pension sacrifice route.
- Pension 25% PCLS guide - tax-free pension lump sum mechanics.
- Salary sacrifice 2026/27 - monthly pension-sacrifice context.
- Universal Credit calculator - post-redundancy income support.
- Higher-rate tax 40% guide - tax band stacking for above-£30k taxable portion.
- SMP comprehensive guide - related statutory pay framework.