Key 2025/26 Redundancy Figures
- Weekly pay cap: £700 per week
- Maximum statutory redundancy: £21,000 (20 years × 1.5 × £700)
- Tax-free threshold for termination payments: £30,000
- Redundancy payments are exempt from National Insurance regardless of amount
- Minimum service to qualify: 2 years continuous employment
Statutory vs Enhanced Redundancy Calculator
Statutory redundancy uses the age-band formula with £700/week cap. The £30,000 threshold applies to the combined statutory and enhanced total. Redundancy payments are NI-free. This calculator is for guidance only.
Understanding Statutory Redundancy Pay 2025/26
Statutory redundancy pay is a legal minimum payment you are entitled to when made redundant after at least 2 years of continuous employment. The amount depends on your age, length of service, and weekly pay, all subject to statutory caps.
The age-band formula determines how many weeks pay you receive for each year of service. Years worked before age 22 earn half a week's pay. Years between age 22 and 40 earn one week's pay. Years from age 41 onwards earn one and a half week's pay. Weekly pay is capped at £700 for 2025/26, and the total is capped at a maximum of 20 years' service.
The result is that two employees with identical pay and service can receive different amounts purely due to age profile. A 45-year-old with 10 years service will receive more than a 30-year-old with the same service and pay. This is intentional — the formula provides additional protection for older workers who may find it harder to re-enter the job market.
How Enhanced Redundancy Pay Works
Many employers offer enhanced redundancy above the statutory minimum. Some offer a higher multiplier per year of service. Others use a higher weekly pay cap, ignoring the statutory £700 ceiling, or extend the maximum service beyond 20 years. The most common form is a simple multiple: for example, two times statutory or three times statutory entitlement.
Enhanced pay may also include ex-gratia elements — additional sums paid as a goodwill gesture rather than as a contractual or statutory entitlement. These elements are treated the same for tax purposes and count toward the £30,000 tax-free threshold.
Some employers make enhanced offers conditional on signing a settlement agreement. This is legal, but you should ensure you understand what claims you are waiving before accepting. Enhanced redundancy as part of a settlement agreement may include statutory entitlement, additional compensation, and PILON elements — all with different tax treatments.
Tax Treatment: The £30,000 Threshold
The first £30,000 of qualifying termination payments is completely tax-free. This includes both statutory and enhanced redundancy. If the combined total stays within £30,000, you pay no income tax on either. If the total exceeds £30,000, only the excess is taxable — and it is taxed as income at your marginal rate, not at a special flat rate.
Importantly, redundancy payments are fully exempt from National Insurance regardless of amount. This is different from salary, PILON, or other employment income which attracts both income tax and NI. So even if you pay income tax on amounts above £30,000, you will never pay NI on redundancy payments.
The tax calculation on excess amounts is straightforward: only the portion above £30,000 is added to your other taxable income for the year and taxed at your marginal rate — typically 20% for basic rate taxpayers or 40% for higher rate taxpayers.
Age-Band Calculation: Full Breakdown
| Age during year of service | Weeks pay per year |
|---|---|
| Under 22 | 0.5 weeks |
| 22 to 40 | 1 week |
| 41 and over | 1.5 weeks |
The calculator works backwards from your current age and years of service to estimate how many years fall into each band. For a precise statutory figure you should use the official government calculator with exact service dates, as the age-band split depends on your exact birthday relative to your start and end dates of employment.
What to Consider When Evaluating an Enhanced Offer
When comparing a statutory and enhanced offer, the key questions are whether the enhanced package is genuinely better after tax, what conditions are attached, and whether there are any other claims you should be considering as part of the overall settlement.
An enhanced offer that includes a settlement agreement will typically require you to waive claims for unfair dismissal, discrimination, and other employment rights. A solicitor can advise you on whether that waiver is appropriate given your circumstances. Employers usually contribute toward legal advice costs as part of the settlement agreement process.
Also consider the timing of payments. Some enhanced packages are phased over multiple tax years to make use of personal allowances in each year, which can reduce total tax significantly. If you are being made redundant near a tax year-end, the timing of payment can have a material impact on your net position.
Frequently Asked Questions
What is the statutory redundancy pay cap for 2025/26?
The weekly pay cap is £700 per week and the maximum statutory payment is £21,000, based on 20 years of service at 1.5 weeks pay at the full capped rate.
Is statutory redundancy pay tax-free?
Yes. Statutory redundancy is tax-free provided the total qualifying termination payment stays under £30,000. The NI exemption applies regardless of total amount.
What counts as enhanced redundancy pay?
Anything above the statutory formula is enhanced. This includes higher multipliers, a higher weekly pay cap, or additional ex-gratia elements. All count toward the £30,000 threshold.
Do you pay NI on redundancy pay?
No. All redundancy payments are National Insurance exempt, whether statutory or enhanced, regardless of the total amount paid.
Can enhanced redundancy attract income tax?
Yes. If the combined total of statutory plus enhanced redundancy exceeds £30,000, the excess is taxable as income at your marginal rate (20%, 40%, or 45%).
How many years of service count for redundancy?
Only the most recent 20 years count toward statutory redundancy. Any service beyond 20 years is disregarded. You also need at least 2 years of continuous service to qualify.
Does voluntary redundancy receive the same tax treatment?
Yes. Voluntary redundancy is treated the same as compulsory for tax purposes, subject to the £30,000 tax-free threshold and full NI exemption.
What is the minimum service to qualify for statutory redundancy?
You need at least 2 years of continuous employment. Employees with under 2 years have no statutory entitlement, though employers may make discretionary payments.
How is the tax on redundancy above £30,000 calculated?
Only the portion above £30,000 is taxable. At basic rate 20%, a £5,000 excess would cost £1,000 in tax. At higher rate 40%, the same excess would cost £2,000.
Can an employer offer less than statutory redundancy?
No. Statutory redundancy pay is a legal minimum. Employers who fail to pay it can be taken to an employment tribunal. The only exception is where the employee is genuinely excluded from eligibility.
Do I need independent advice before accepting enhanced redundancy?
If the enhanced offer comes with a settlement agreement waiving employment claims, independent legal advice is legally required for the waiver to be valid. Employers usually contribute toward advice fees.
What happens to redundancy pay if my employer is insolvent?
Statutory redundancy pay can be claimed from the government Redundancy Payments Service via the Insolvency Service if your employer cannot pay. The statutory minimum is protected through the National Insurance Fund.