What is Redundancy Pay? UK Definition 2026/27
Quick Answer
Compensation when your job is eliminated - first £30,000 is tax-free.
Definition of Redundancy Pay
Redundancy pay compensates employees when their job is eliminated. Statutory redundancy pay depends on age, length of service, and weekly pay (capped at £700). Many employers pay enhanced redundancy above the statutory minimum. The first £30,000 of redundancy pay is tax-free; amounts above are taxed as earnings.
Redundancy Pay — Key Facts for 2026/27
| Tax-free amount | £30,000 |
| Weekly pay cap | £700 |
| Under 22 | 0.5 week per year |
| 22-40 | 1 week per year |
| Over 41 | 1.5 weeks per year |
How Redundancy Pay Works — Example
- 1Age: 45, Years service: 10, Weekly pay: £600
- 2Statutory: (4 × 1.5) + (4 × 1) + (2 × 1) = 12 weeks
- 3Statutory pay: 12 × £600 = £7,200
- 4Employer enhanced: £40,000 total
- 5Tax-free: £30,000, Taxable: £10,000
How Redundancy Pay Affects Your Tax
Redundancy pay provides important financial cushion when losing your job. The £30,000 tax-free element is valuable. Note that pay in lieu of notice (PILON) is usually taxable separately from the £30,000 exemption.
Official HMRC Guidance on Redundancy Pay
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
GOV.UK: Redundancy rightsFrequently Asked Questions about Redundancy Pay
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.