Redundancy tax calculator (£30,000 rule and PENP)
Work out the taxable and tax-free split of your redundancy or termination payment, including post-employment notice pay (PENP), in seconds.
Section 402D uses the notice you will not work. If you work part of your notice, enter only the remainder; if you work all of it, enter 0.
Leave blank if no contractual PILON has already been paid and taxed as earnings.
What a settlement agreement typically adds
- Compensation for the risk of an unfair dismissal or discrimination claim, negotiated on top of the scheme figure.
- A reference and an agreed announcement, reducing the risk to future job hunting that a bare redundancy does not cover.
- Payment in lieu of notice and accrued but untaken holiday, settled as part of the same agreement rather than argued separately.
- Legal fees towards the employee's own advice on the agreement, which is a legal requirement for it to be binding.
Figures are correct to our knowledge against sections 401 to 403 of ITEPA 2003 and the section 402D PENP formula, and are indicative only, not tax advice. Read how our figures are checked.
How much tax will I pay on my redundancy payment?
The first £30,000 of a genuine termination payment is tax-free under sections 401 to 403 of ITEPA 2003. Anything above that is taxed as income. Post-employment notice pay (PENP) is calculated separately and is always taxed in full, on top of that allowance, under the section 402D formula.
Worked examples: tax on common redundancy payments
Assumes no PENP (payment in lieu of notice already taxed separately through payroll). A real PENP figure only ever moves more of the payment onto the taxable side.
| Total payment | Tax-free | Taxable |
|---|---|---|
| £30,000 | £30,000 | £0 |
| £50,000 | £30,000 | £20,000 |
| £60,000 | £30,000 | £30,000 |
| £80,000 | £30,000 | £50,000 |
| £100,000 | £30,000 | £70,000 |
For example, on a £60,000 redundancy payment with no PENP, £30,000 is tax-free and £30,000 is taxed as income.
What is PENP and how is it calculated?
Post-employment notice pay (PENP) is the part of a payment that stands in for notice you were not required to work. Section 402D of ITEPA 2003 sets the formula: PENP = (BP × D / P) − T, where BP is your basic pay for the last full pay period before your leaving date, D is the calendar days of unworked notice, P is the number of days in that pay period, and T is any contractual notice payment already taxed through payroll. PENP is always taxed as general earnings in full and never shares the £30,000 exemption.
Not sure your employer has got the split right?
Getting the PENP and £30,000 allocation wrong is a common way a settlement agreement costs you more tax than it should. Our SRA-regulated solicitors review your agreement the same working day. It is free to you when your employer pays the fee, which is the case in nearly every UK settlement agreement.
Redundancy tax: frequently asked questions
How much tax will I pay on my redundancy payment?
The first £30,000 of a genuine termination payment, including redundancy pay, is tax-free under sections 401 to 403 of ITEPA 2003. Anything above that is taxed as income. Any post-employment notice pay (PENP) is a separate figure and is always taxed as general earnings in full, on top of, not inside, the £30,000 allowance.
What is PENP and why is it taxed differently?
Post-employment notice pay (PENP) is the part of a termination payment that corresponds to notice you did not work. Since 2018, section 402D of ITEPA 2003 requires PENP to be taxed as general earnings, with tax and National Insurance deducted through payroll, regardless of how the payment is labelled in your settlement agreement.
Does the £30,000 tax-free threshold apply per tax year?
No. The £30,000 threshold applies to the whole termination payment, however it is structured or split. Spreading payment across two tax years does not create a second allowance.
Is statutory redundancy pay taxed differently from enhanced redundancy pay?
No. Both statutory and enhanced (contractual) redundancy pay count towards the same £30,000 allowance, alongside any other genuine compensation for loss of employment in the same settlement.
Embed this figure
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<div style="font-family:-apple-system,Segoe UI,Arial,sans-serif;max-width:420px;border:1px solid #d7ece9;border-radius:12px;padding:20px;background:#f7f9f8;color:#0d3b3e;">
<p style="margin:0 0 8px;font-size:13px;font-weight:600;text-transform:uppercase;letter-spacing:.03em;color:#00727a;">Tax-free termination payment threshold</p>
<p style="margin:0 0 8px;font-size:28px;font-weight:700;line-height:1.1;">£30,000</p>
<p style="margin:0 0 14px;font-size:13px;color:#5b6b6a;">Set by s.403(1) ITEPA 2003 (the payment is brought into charge by s.401; the threshold figure itself is in s.403). Post-employment notice pay (PENP) is taxed separately, on top of this allowance. Effective from 1988-04-06, last verified 2026-08-11.</p>
<p style="margin:0;font-size:12px;color:#5b6b6a;">Source: <a href="https://settlement-advice.com/redundancy-tax-calculator/" style="color:#00727a;text-decoration:underline;" rel="noopener">Settlement Advice, redundancy tax calculator</a></p>
</div>Please keep the attribution line and link back to the calculator. See /embed/ for terms of use.
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Correct to our knowledge as at 22 August 2026, indicative only, not tax advice. Read how our figures are checked.