Tax on redundancy, PILON and the £30,000 exemption

GOV.UK: tax on termination payments divides a leaving package into parts that are treated as earnings, and parts that may fall within a £30,000 exemption.

You pay income tax and employee National Insurance on unpaid wages, holiday pay, bonuses, and payments you receive instead of working your notice (PILON). Statutory redundancy pay is not treated as earnings. Additional severance or enhanced redundancy usually counts towards the combined £30,000 exemption. Anything above that exemption is subject to income tax, but not employee NI. The employer pays Class 1A NI at 15% on that excess in 2026/27.

Post-Employment Notice Pay

If you do not work your notice and are not paid a separate PILON, part of any severance can still be treated as earnings. GOV.UK calls this Post-Employment Notice Pay (PENP). Their first example: statutory redundancy of £10,000, severance of £5,000, four weeks’ notice at £500 a week. £2,000 of the severance is taxed as earnings; the remaining £13,000 is within the £30,000 exemption. Their second example: if PENP is £4,000 but severance is only £3,000, the whole £3,000 is earnings.

This calculator follows those examples (notice weeks × weekly pay, carved out of severance). The full tax-law formula in ITEPA can use calendar days and can be different. If your employer has already given you a PENP figure, prefer that.

Income tax in this tool uses the official 2026/27 bands, including the £12,570 personal allowance and the taper above £100,000, and Scottish rates if you select Scotland. Employee NI is estimated as if the earnings parts are paid in a single month. Emergency tax codes, student loans, pension contributions and directors’ annual NI are not modelled.