A package figure in a meeting and the amount in your bank account may differ. Ask payroll to break down each element before deciding whether the difference is tax, National Insurance, a lawful deduction or a calculation error. Tax treatment below generally applies across the UK; individual facts matter.
Statutory redundancy pay and qualifying compensation for loss of employment can generally be included in the combined £30,000 termination-payment tax exemption. Enhanced payments are not automatically exempt merely because they are described as 'redundancy': check their legal character, including whether any part represents notice or earnings. Taxable termination compensation above the exemption normally attracts income tax and employer Class 1A National Insurance, but not employee NI on that excess.
Pay for untaken holiday, outstanding wages and taxable bonuses are ordinarily taxed as earnings, with employee and employer NI where applicable. Notice pay and the part of a termination package representing post-employment notice pay are generally taxable as earnings with NI. The precise calculation can be complex, including cases with notice already worked or paid. Example: if a £45,000 package comprises £30,000 qualifying compensation, £12,000 taxable notice and £3,000 taxable holiday pay, the £15,000 is not protected by the £30,000 exemption.
A large final payslip can produce more PAYE withholding than expected. That does not prove you were overtaxed for the tax year. Check your payslip, P45, tax code and HMRC account. Form P50 is available only when its eligibility conditions are met; you may instead reconcile tax through a new employer, Self Assessment or HMRC's year-end process. Ask HMRC if unsure.
Employer contributions to a registered pension may in some circumstances be a tax-efficient alternative for part of a negotiated package, subject to pension annual allowance, tax and scheme rules and the employer's agreement. It is not a guaranteed workaround for the £30,000 exemption, and changing payment terms after receipt may not achieve the intended tax treatment. Get regulated financial or qualified tax advice for substantial sums.
Ask for the written itemised breakdown, check the redundancy calculation against service and gross pay, and check notice against your contract. Do not sign a settlement agreement just to obtain clarification; take independent qualified advice before signing one.
Explore: https://myredundancyrights.co.uk/faq
Official sources: GOV.UK tax on termination payments; GOV.UK claim tax refund after stopping work; GOV.UK redundancy pay calculator. General information, not individual tax advice.