Statutory redundancy pay

Produced by Tolley in association with

Employment Tax

Guidance

Redundancy payments fall into two categories: statutory payments and non-statutory payments. Statutory redundancy is the amount which must be paid by the employer to the employee under employment law and will be a fixed amount for each year of service. Statutory redundancy pay is usually exempt from tax.

For more on non-statutory redundancy pay, see the Non-statutory redundancy pay guidance note.

HMRC guidance is at EIM13760 onwards. See also Simon’s Taxes E4.824 and E4.802F.

Employment law obligations

An employee is entitled to a statutory redundancy payment if they are made redundant after being continuously employed by the employer for at least two years.

The statutory redundancy payment is calculated by reference to the employee’s age, length of service and gross weekly pay. The amount of a week’s pay is subject to a statutory maximum cap which is reviewed each year:

Tax year

Maximum amount

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Sue El Hachmi

Senior Associate at Osborne Clarke

Sue advises on the design and implementation of employee incentive arrangements for private and public companies, including all types of tax-advantaged plans and bespoke arrangements for senior executives and management. Sue also advises on the incentive-related aspects of corporate transactions and has experience of private equity transactions and public company takeovers, flotations and demergers. Sue is a member of the Share Plan Lawyers Group and a member of the UK BioIndustry Association Finance and Tax Advisory Committee.

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