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Redundancy Pay UK 2026: Your Rights, Tax Rules, and What to Do Next

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Redundancy can happen to anyone, and being prepared — or at least quickly informed — can make a substantial difference to your financial position. In the UK, employees have strong statutory rights around redundancy pay, notice periods, and consultation. The tax treatment of redundancy payments is also favourable, with the first £30,000 of certain redundancy pay completely free from income tax and National Insurance. Knowing your rights and options helps you negotiate, plan, and make smart decisions at a stressful time.

Statutory Redundancy Pay: What You're Entitled To

Statutory Redundancy Pay (SRP) is a minimum legal entitlement for most employees who are made redundant. To qualify, you must have been continuously employed for at least 2 years. The amount is calculated based on your age, weekly pay (capped at £643/week from April 2024), and length of service. For each full year of service: under age 22 = half a week's pay; age 22–40 = one week's pay; 41 or over = one and a half week's pay. The maximum statutory payment is currently £19,290 (April 2024–April 2025). Many employers offer enhanced redundancy pay above the statutory minimum — check your contract and staff handbook. SRP is tax-free as part of the broader £30,000 redundancy exemption.
  • •Minimum qualifying period: 2 years of continuous employment
  • •Pay capped at £643/week (2024/25)
  • •Under 22: 0.5 week per year; 22–40: 1 week per year; 41+: 1.5 weeks per year
  • •Maximum statutory payment: £19,290
  • •Enhanced redundancy: check your employment contract

The £30,000 Tax-Free Redundancy Exemption

The first £30,000 of certain redundancy-related payments is free from income tax and National Insurance. This includes statutory redundancy pay, enhanced redundancy pay (above statutory), ex-gratia payments (money paid on top of what you're contractually entitled to), and payments in lieu of notice if not contractually provided for. Payments that do not qualify include: contractual notice pay (fully taxable), holiday pay owed (fully taxable), payment for work done (fully taxable), and any enhanced redundancy pay that exceeds the £30,000 threshold. Above £30,000, the excess is taxed as income but is still not subject to Employee NI contributions (though from April 2020, Employer NI applies above £30,000).
  • •First £30,000 of qualifying redundancy payments: tax-free and NI-free
  • •Qualifying: statutory pay, enhanced pay, ex-gratia payments
  • •NOT qualifying: notice pay, holiday pay, pay for work done
  • •Above £30,000: income tax applies; Employee NI does not
  • •Employer NI applies to the employer above £30,000 (post-April 2020)

Notice Pay and Holiday Entitlement

Beyond redundancy pay, you're entitled to your full notice period (either as worked notice or payment in lieu of notice) and any outstanding annual leave accrued but not taken. These payments are fully taxable — they form part of your regular earnings. Your minimum statutory notice period is 1 week per year of service (up to 12 weeks), but your contract may provide more. If your employer pays in lieu of notice (PILON) rather than requiring you to work it, this is now taxed as employment income regardless of whether it was contractually provided — HMRC changed the rules in 2018 to eliminate the previous loophole.
  • •Minimum statutory notice: 1 week per year of service (max 12 weeks)
  • •Check contract: contractual notice may be longer
  • •Holiday pay owed on termination: fully taxable
  • •Payment in lieu of notice (PILON): always taxable since 2018
  • •Unpaid wages and bonuses: always taxable

Financial Steps After Redundancy

Once you've understood your pay entitlements, take immediate steps to stabilise your finances. Check what benefits you're entitled to — Universal Credit has a lead time, and applying early maximises your support period. Review your outgoings ruthlessly: pause non-essential subscriptions and direct debits. Check if you're entitled to a council tax reduction. Review your pension — you may be entitled to a refund of contributions if employed less than 2 years, or you can leave the pot to grow. If you have a mortgage, contact your lender about a payment holiday before you miss a payment. Check if your mortgage payment protection insurance (MPPI) is active. Create a 'financial runway' — calculate how many months your savings cover at your current spend.
  • •Apply for Universal Credit immediately if needed (5-week wait for first payment)
  • •Council tax reduction: apply if income drops
  • •Pause non-essential direct debits
  • •Mortgage payment holiday: speak to lender before missing a payment
  • •Calculate financial runway: savings ÷ monthly spend = months of runway

Frequently Asked Questions

Can I negotiate my redundancy package?+

Yes — especially enhanced redundancy or ex-gratia payments. Employers often have flexibility, particularly if settlement agreement payments are involved. Consider seeking independent legal advice (often paid for by the employer in a settlement agreement).

Does redundancy affect my pension?+

Your employer stops contributing once you leave. Your existing pension pot stays invested. You can continue contributing from your own funds. If you were in a DB scheme with under 2 years service, you may receive a refund of contributions.

I'm on a zero-hours contract — am I entitled to redundancy pay?+

If you've worked for the employer for 2+ continuous years and meet the employee definition, yes. Zero-hours doesn't automatically exclude you from statutory rights.

My employer is insolvent — can I still claim redundancy?+

Yes — the government's Redundancy Payments Service (RPS) guarantees statutory redundancy pay even if your employer goes insolvent. Apply via GOV.UK.

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