Holiday and final pay · Great Britain
Holiday pay vs redundancy pay: how are they taxed?
Payment for untaken holiday is treated as earnings and goes through PAYE and the usual National Insurance rules. Statutory redundancy pay and qualifying enhanced redundancy payments generally share a £30,000 Income Tax exemption. The qualifying amount above £30,000 is taxable and generally attracts employer Class 1A National Insurance.
Worked example
Suppose your final package includes £26,000 of qualifying redundancy pay and £1,200 of unused holiday pay. The £26,000 falls within the exemption. Payroll treats the £1,200 separately as earnings, even though the combined package is below £30,000. Use the redundancy calculator to estimate gross statutory redundancy pay and the holiday calculator to estimate unused leave in days.
What to check on your payslip and P45
Ask for an itemised breakdown showing gross holiday pay, statutory and enhanced redundancy pay, any notice pay and the deductions applied. The P45 records taxable pay and tax to date and may not show every payment separately. If your employer pays you after issuing the P45, ask for written confirmation of the payment and deductions. Read our redundancy tax guide for more on the £30,000 rule.