Reviewed by Mustafa Bilgic
Founder, WebCalculator · Last updated 26 July 2026
Tax treatment per ITEPA 2003 s403 and GOV.UK guidance. Not financial or legal advice.
The first £30,000 of a genuine termination payment is tax-free. Anything above is taxed at your marginal Income Tax rate but is exempt from employee National Insurance. Enter your termination payment and salary below to see exactly how much tax applies in 2026/27.
Termination payment and salary
A genuine termination payment — compensation for loss of office, settlement agreement payment, or ex-gratia redundancy payment — benefits from a £30,000 tax-free exemption under ITEPA 2003 s403. Amounts above £30,000 are taxed as employment income at your marginal rate but are exempt from employee NI.
| Payment type | Tax treatment |
|---|---|
| Statutory redundancy pay | Uses the £30,000 exemption |
| Ex-gratia / compensation payment | Uses the £30,000 exemption |
| Settlement agreement payment | Uses the £30,000 exemption |
| Notice pay (PILON) | Taxed as earnings (PAYE + NI) |
| Outstanding holiday pay | Taxed as earnings (PAYE + NI) |
| Bonus or commission owed | Taxed as earnings (PAYE + NI) |
For calculating your statutory redundancy entitlement, use the redundancy pay calculator. For full take-home pay calculations, see the take-home pay calculator.
The first £30,000 is tax-free. Any amount above is subject to Income Tax at your marginal rate. Employer Class 1A NI at 15% also applies on the excess, but this is the employer's cost, not deducted from your payment.
Employee NI is not charged on any part of a termination payment — either below or above £30,000. Employer Class 1A NI at 15% applies on the amount exceeding £30,000.
Payments made because your employment is ending — compensation for loss of office, settlement agreements, or ex-gratia payments. Contractual notice pay, holiday pay and bonuses are treated as normal earnings.
Yes. Statutory redundancy uses up part of the £30,000. If statutory redundancy is £12,000 and your employer adds £25,000 ex-gratia, the total is £37,000 — £7,000 is taxable.
No. Pay in lieu of notice (PILON) is taxed as earnings through PAYE with full Income Tax and NI. It does not use the £30,000 exemption.
The taxable portion above £30,000 is added on top of your other income. If your salary already uses your Personal Allowance and basic-rate band, the excess may fall into the 40% or 45% band.