UK / Checker
Redundancy pay checker (UK)
Redundancy lump-sums on a final payslip mix several different tax treatments. Statutory redundancy and the first £30,000 of compensation are tax-free; PILON (pay in lieu of notice) and holiday pay are fully taxable; enhanced contractual redundancy may share the £30,000 band. PayslipIQ checks whether the split was applied correctly.
Educational guidance only. PayslipIQ is not HMRC, your employer, a payroll provider, tax adviser, financial adviser, pension adviser or legal adviser. Always verify with payroll or HMRC before acting.
The problem
Final payslips after redundancy are commonly wrong. Employers have to split the lump-sum into taxable and tax-free portions, apply the right code, handle PILON and holiday pay separately, and decide how an enhanced contractual element interacts with the £30,000 statutory band.
Get any of those wrong and the employee can be over-taxed by thousands. PayslipIQ flags the common errors and shows what the breakdown should look like.
Plain-English explanation
The four components on a redundancy payslip:
- Statutory redundancy pay — tax-free, NI-free.
- Enhanced (contractual) redundancy — taxable on amounts above the combined £30,000 band; tax-free below it.
- Pay in lieu of notice (PILON) — fully taxable and NIable.
- Outstanding holiday pay and final salary — fully taxable and NIable.
The £30,000 tax-free band applies to the combined statutory + enhanced redundancy and ex-gratia compensation, NOT to PILON or holiday pay. PILON has been taxable in full since April 2018.
Statutory redundancy pay for 2026/27 is calculated on age + service + a weekly cap. The cap for the weekly amount is £700/week (2026/27), and the maximum total statutory redundancy is £21,000.
Worked example - £45,000 lump-sum after 8 years service
- Statutory redundancy: ~£8,400 (illustrative — depends on age + service)
- Enhanced contractual: £25,000
- PILON: £7,500 (3 months at £2,500/month)
- Holiday pay: £4,100 (15 days outstanding)
- Tax-free band used: £30,000 (statutory + enhanced fall within)
- Statutory + enhanced taxable amount: £33,400 − £30,000 = £3,400
- Plus fully-taxable PILON £7,500 + holiday £4,100
- Final tax depends on cumulative vs M1/W1/X basis
Worked example uses 2026/27 UK figures and is illustrative. Do not use it as a personal tax calculation.
Apply this to your own payslip
Get your figures checked in plain English
Upload a redacted payslip or enter your figures manually. PayslipIQ will run the same logic explained on this page and give you a per-line second opinion. No signup. Image not stored by PayslipIQ.
Check My Payslip FreeStep by step
Identify the four components
Find separate lines on the payslip for statutory redundancy, enhanced redundancy, PILON and holiday pay. If they are all in one line, ask payroll for a breakdown.
Apply the £30,000 band
The band covers statutory + enhanced + ex-gratia compensation. PILON and holiday pay sit outside the band and are fully taxed.
Confirm PILON treatment
PILON is fully taxable and NIable. There is no tax-free element. Many employers still get this wrong.
Check the tax-code basis
A leaver payslip on M1/W1/X can over-tax the period because there is no year-end rebalance through this employer.
Run a free PayslipIQ check
Upload your redacted final payslip or enter the figures manually for a per-line second opinion.
What to ask payroll
- Can you give me a written breakdown of the four components in my final pay?
- How was the £30,000 tax-free band allocated between statutory and enhanced redundancy?
- Was my PILON taxed and NIable in full, including the employer NI uplift if my contract was without notice?
- How many days of outstanding holiday were included, and at what daily rate?
- What tax-code basis did you apply to my final payslip?
When to contact HMRC
- If you have been over-taxed, file a tax return for the year (or use form P50 if no further income) to reconcile.
- Use your gov.uk personal tax account to check your code on any new employment that follows.
- For ex-gratia or enhanced compensation above £30,000, an accountant can help structure the arrangement before sign-off.
FAQ
- How much redundancy pay is tax-free?
- The first £30,000 of statutory + enhanced redundancy + ex-gratia compensation. PILON and holiday pay sit outside this band and are fully taxable.
- Is PILON tax-free?
- No. Pay in lieu of notice has been fully taxable and NIable since April 2018.
- Is statutory redundancy taxable?
- No. Statutory redundancy is tax-free and NI-free.
- How is statutory redundancy calculated?
- Age × years of service × weekly pay (capped at £700/week for 2026/27). Different multipliers apply to under-22, 22–40 and 41+ service years. Maximum total: £21,000.
- Can I salary-sacrifice my redundancy into pension?
- It is possible — talk to an adviser before sign-off. Pension sacrifice can shelter taxable enhanced redundancy and reduce overall tax liability.
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Educational guidance only. PayslipIQ provides an educational second opinion based on the figures you supply and the public 2026/27 UK PAYE, NI, pension and student-loan rules. PayslipIQ is not affiliated with HMRC and is not a regulated tax, legal, financial, payroll or employment adviser. Verify any final figure with your payroll team, HMRC, your pension provider or a qualified professional before acting.
Published 2026-05-10. Last reviewed 2026-05-10. See our methodology and payslip processing privacy notice.