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    TaxKilnUK tax guidance
    TaxKilnUK tax guidance

    Redundancy + termination → Statutory redundancy calculation

    Statutory Redundancy Calculation — ERA 1996 + 2025/26 £719/wk + 2026/27 £751/wk Caps

    Statutory redundancy pay is set by the Employment Rights Act 1996 s.135-181. Entitlement requires 2 years' continuous service. The calculation is: half a week's pay for each year of service under age 22, one week's pay for each year 22-40, and one and a half weeks' pay for each year 41 or over. A maximum of 20 years is counted. The weekly pay used is capped — for redundancies where the termination falls in the 2025/26 statutory year (6 April 2025 onwards) the cap is £719 per week, giving a maximum statutory redundancy of £21,570 (20 × 1.5 × £719). The cap rises to £751 per week for 2026/27, giving a maximum of £22,530. Statutory redundancy is a qualifying payment under ITEPA 2003 s.401 and counts within the £30,000 exemption.

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    Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact HMRC. Read our editorial scope →

    In plain English

    Statutory redundancy is the legal floor your employer must pay if you have 2+ years of service and you're being made redundant. Many employers pay more (enhanced redundancy), but they cannot pay less than the statutory amount unless you've agreed otherwise in a valid settlement. The calculation is age-banded. For each complete year of service: • under age 22 in that year: half a week's pay • age 22-40: one week's pay • age 41+: one and a half weeks' pay Only the last 20 years count. The weekly pay used is gross weekly pay, but capped — for terminations in the 2025/26 statutory year the cap is £719/week; for 2026/27 it rises to £751/week. So the absolute maximum statutory redundancy is 20 years × 1.5 weeks × the cap. For tax, statutory redundancy is part of the ITEPA s.401 'termination payments' regime — it counts towards the £30,000 tax-free cap, not on top of it.

    How it works

    Eligibility — 2 years continuous service

    You need at least 2 years' continuous employment by the relevant date (usually the date your employment ends). Service before age 18 is not excluded for entitlement, but the age multiplier applies as you reach each band. Some categories are excluded (e.g. share fishermen, certain Crown employment, those who unreasonably refuse suitable alternative employment).

    Age multipliers per year of service

    For each complete year of service the multiplier depends on your age in that year: ½ week under 22; 1 week age 22-40; 1½ weeks age 41+. Practical method: take your age at termination, count back; the most-recent years use the 1½-week multiplier (if you are 41+), older years drop to 1 week (if you crossed 41 during them), and so on.

    Years cap of 20

    Only the most recent 20 years count. A 30-year employee aged 60 is treated as having 20 years of service ending at age 60 — so all 20 fall in the 41+ band giving 20 × 1.5 = 30 weeks' pay.

    Weekly pay cap — 2025/26 £719 / 2026/27 £751

    The 'week's pay' used in the calculation is statutorily capped under ERA 1996 s.227. The cap is uprated annually (usually each 6 April). For terminations in 2025/26 the cap is £719/week — so the maximum statutory redundancy is 20 × 1.5 × £719 = £21,570. For 2026/27 it rises to £751/week — maximum £22,530. Employees earning above the cap still receive only the capped amount as statutory entitlement (employer top-ups can address this contractually).

    Tax — within the £30k exemption

    Statutory redundancy is a qualifying ITEPA s.401 payment. It counts towards the £30,000 s.403 exemption — it is not a separate tax-free allowance. For most employees the statutory amount sits comfortably below £30k; the cap is only reached for the longest-serving high-earning leavers.

    Who this applies to + key conditions

    Statute + manual references

    Primary: Employment Rights Act 1996 sections 135-181 (Part XI) — statutory redundancy payment entitlement, calculation, and procedure.

    Related: ERA 1996 s.139 — definition of redundancy; ERA 1996 s.162 — calculation formula; ERA 1996 s.227 — weekly pay cap (uprated annually by SI under s.34 Employment Relations Act 1999); ITEPA 2003 s.401-416 — tax treatment of termination payments including statutory redundancy

    HMRC manual: EIM13760+ — statutory redundancy pay (tax treatment)

    Common mistakes + traps

    Worked example

    Sarah, age 45, made redundant after 15 years' service, weekly gross pay £900, termination July 2025

    Sarah is 45 at termination. She has 15 complete years of service. Her gross weekly pay (£900) is above the 2025/26 cap of £719, so the cap applies. Termination in July 2025 falls in the 2025/26 statutory year.

    1. Step 1 — Count years in each age band. Sarah is 45, so she was 41+ for the last 4 years of service. Years 1-11 (her younger years to age 41) fall in the 22-40 band — 1-week multiplier. Years 12-15 fall in the 41+ band — 1½-week multiplier.
    2. Step 2 — Weeks of pay: (11 × 1) + (4 × 1.5) = 11 + 6 = 17 weeks.
    3. Step 3 — Apply 2025/26 capped weekly pay: 17 × £719 = £12,223 statutory redundancy.
    4. Step 4 — Tax: statutory redundancy is within ITEPA s.401. £12,223 uses part of the £30,000 exemption — £17,777 of the cap is still available for any enhanced ex-gratia top-up.
    5. Step 5 — If Sarah's employer adds £15,000 enhanced ex-gratia, total s.401 slice = £27,223, still within the £30k cap — fully tax-free.

    Outcome: Sarah's statutory redundancy is £12,223 — entirely tax-free within the s.401 / £30k regime. Up to £17,777 of further ex-gratia top-up can also be received tax-free before the cap bites.

    How this connects to the rest of the framework

    £30k exemption mechanics →

    Statutory redundancy is a qualifying s.401 payment and counts within the £30,000 cap, not on top of it.

    Settlement agreements →

    Settlement agreements often combine statutory redundancy + enhanced redundancy + PILON — each slice is taxed differently.

    PILON + PENP formula →

    Notice pay is separate from statutory redundancy; PENP rules apply to PILON since April 2018.

    Scenarios — 8 cases →

    Multiple worked scenarios show statutory redundancy across age + service combinations.

    Frequently asked questions

    What happens if I miss the Self Assessment deadline?+
    The Self Assessment deadline is 31 January (online filing) for the previous tax year. Miss it and HMRC apply an automatic £100 penalty. Beyond that: £10 per day from 3 months late (capped at £900), 5% of tax due at 6 months late, and another 5% at 12 months late, under Schedule 55 of the Taxes Management Act 1970. If you have a genuine reason (serious illness, bereavement, technical issue with HMRC's systems) you can appeal with evidence; HMRC accepts reasonable excuse appeals in most genuine cases.
    Do I need an accountant or can I file Self Assessment myself?+
    Legally you can file Self Assessment yourself via gov.uk for free, most simple sole-trader returns (single income source, basic expenses) are realistic to self-file. An accountant adds real value when: your trading profit is above £40,000 (extraction-strategy decisions matter), you have multiple income streams (PAYE + self-employment + property + dividends), you've crossed the £90,000 VAT threshold, you're considering incorporation, or you have an HMRC enquiry. Expect to pay £400-£1,500/year for a typical sole-trader accountant; the cost is itself a deductible expense.
    How do payments on account work?+
    When your Self Assessment tax bill exceeds £1,000 for the first time, HMRC requires payments on account toward NEXT year's tax. Half the current bill is due 31 January (alongside the current bill); the other half is due 31 July. So your first January after crossing the threshold can hit with a double-bill: last year's balance + first payment on account. Adjust via Form SA303 if you expect next year's income to drop substantially. Payments on account don't apply if more than 80% of your tax is collected via PAYE.
    Does the weekly cap apply to enhanced contractual redundancy?+
    No — the £719/£751 cap is a STATUTORY cap. Contractual enhanced redundancy can be calculated on uncapped pay if the contract or policy says so. The tax position then depends on whether the enhanced slice is genuinely ex-gratia (s.401 / £30k) or contractually owed.
    What counts as 'a week's pay'?+
    Generally normal gross weekly pay, calculated under ERA 1996 ss.220-229. For those with variable hours / pay it's averaged over the last 12 weeks before the calculation date.
    Can I claim statutory redundancy if my employer is insolvent?+
    Yes — apply to the National Insurance Fund via the Redundancy Payments Service. The cap still applies.
    Does service before age 18 count?+
    Yes for entitlement — service from any age counts towards the 2-year qualifying period. The age multiplier still applies as you cross age 22 and 41.

    Free + regulated-body resources

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