The legal position
UK statute doesn't require redundancy to be paid as a single lump sum. The Employment Rights Act 1996 specifies:
- Statutory redundancy must be paid "as soon as is reasonably practicable" after termination
- "As soon as reasonably practicable" is interpreted as within a few weeks, sometimes longer where there's a documented good reason
Without an explicit agreement to the contrary, the default is a single payment in your final pay run or shortly thereafter.
With written agreement between employer and employee, instalment arrangements are permitted. The agreement should specify:
- Total amount (statutory + enhanced)
- Instalment schedule (dates and amounts)
- Currency and payment method
- Consequences of non-payment by employer
- Tax treatment of each instalment
If the employer attempts to pay in instalments without your consent, that's an unlawful deduction from wages — actionable via Employment Tribunal.
Why someone would agree to instalments
Reason 1 — Tax-year spreading
For very large redundancy packages (typically £100,000+), spreading payment across two tax years can reduce total tax.
Example: £150,000 enhanced redundancy package paid to a £100,000-earner in March 2027.
If paid as a single lump sum in March 2027: - Combined annual income: £100,000 (salary year to date) + £150,000 redundancy = £250,000 - £30,000 tax-free - Personal allowance fully tapered (above £125,140) - Most of the above-threshold portion in 45% additional rate - Approximate tax: £55,000+
If split: £50,000 in March 2027, £100,000 in April 2027 (next tax year): - 2026/27: less income compression, lower marginal rate on the £20,000 above-threshold portion - 2027/28: fresh personal allowance, fresh tax-bands; £70,000 above-threshold at lower-rate progression - Approximate combined tax: £45,000
Saving: £10,000+ depending on exact arithmetic.
This is the main mechanical reason to consider instalments — and only worth the complexity if the package is large enough to span tax bands and tax years.
Reason 2 — Employer cash flow with sweetener
Some struggling employers offer enhanced redundancy in instalments because they can't afford lump-sum payment. The negotiation might include:
- Higher gross amount in exchange for instalment timing
- Better reference template
- Restrictive covenant releases
- Interest on deferred amounts
If the employer is genuinely struggling, instalments come with insolvency risk — that's the trade-off. Some employees accept this risk in exchange for a higher headline figure.
Reason 3 — Pension annual allowance smoothing
If you want to sacrifice large amounts into pension but your annual allowance is constrained, paying instalments across two tax years lets you use two years' worth of annual allowance.
The tax treatment of instalments
Each instalment is taxed in the tax year it's received. HMRC treats them as separate receipt events for tax-year attribution.
The £30,000 threshold applies to the redundancy event in aggregate — not £30,000 per instalment. So:
- First instalment of £30,000 in March 2027: tax-free
- Second instalment of £20,000 in April 2027: fully taxable at marginal rate (because cumulative redundancy now exceeds £30,000)
If your agreement specifies "Instalment 1 = £30,000 tax-free, Instalment 2 = £20,000 taxable," that matches HMRC's view.
PILON, notice, holiday pay generally cannot be deferred to a later tax year — they're contractually due at termination. Only the redundancy portion itself has flexibility.
The employer-insolvency risk
The single biggest risk of instalment arrangements: your employer becomes insolvent before paying everything you're owed.
What's protected: - Statutory redundancy is recoverable from the Redundancy Payments Service (RPS) if employer is insolvent - Holiday pay and notice pay are similarly recoverable up to statutory caps - These claims are filed via Form RP1 to RPS after the employer enters formal insolvency
What's not protected: - Enhanced (contractual) redundancy above the statutory minimum is an unsecured creditor claim - Most settlement-agreement payments above statutory are unsecured - Recovery from unsecured creditor claims is typically 5-30% in a liquidation
Risk mitigation: - Insist on the largest first instalment possible (ideally most or all of the package) - Reserve instalment arrangements for solvent employers only - Consider personal guarantee from individual director (rare but possible for small employers) - Get the agreement in a legally enforceable settlement agreement form
If your employer is currently healthy but you have any concern, lump-sum is safer.
Practical structuring example
Scenario: £180,000 redundancy package agreed in February 2027, with the employee earning £120,000 in 2026/27.
Option A — single lump sum March 2027: - Annual income: £120,000 (salary) + £180,000 redundancy = £300,000 - £30,000 tax-free + £150,000 above threshold - Personal allowance fully tapered - £150,000 mostly in 45% band (above £125,140) - Tax on above-threshold redundancy: ~£62,000
Option B — split across tax years: - £30,000 paid March 2027 (tax-free, uses 2026/27) - £75,000 paid April 2027 (early in 2027/28, before next year's salary kicks in) - £75,000 paid July 2027
If employee starts a new job at £80,000 in August 2027: - 2027/28 total: £75,000 + £75,000 + £80,000 × 8/12 = £203,333 - Compared to Option A's £300,000 in 2026/27, Option B has lower in-year peak
Approximate tax saved across years: £8,000-£15,000 depending on exact dates and bands.
The complexity vs benefit only justifies for very large packages (£150,000+) with reasonable employer solvency.
How instalment agreements should be drafted
A robust instalment agreement, typically embedded in a settlement agreement:
Schedule of Instalment Payments:
1. £30,000 on [date] — statutory + enhanced redundancy, within £30,000 tax-free threshold
2. £50,000 on [date in next tax year] — above-threshold redundancy, taxable in receipt tax year
3. £20,000 on [date in following tax year] — final installment, taxable in receipt tax year
Failure to pay any instalment by 14 days after due date entitles the employee to:
- Accelerate all remaining instalments to be immediately payable
- Apply for Employment Tribunal recovery
- [Optional: trigger personal guarantee from director X]
The £30,000 tax-free threshold applies to the redundancy in aggregate.
Each instalment is taxable in the tax year it is received.
This level of specificity matters because ambiguous wording in settlement agreements often goes against the weaker party (you).
The Redundancy Payments Service safety net
If your employer enters formal insolvency before paying all instalments:
- File Form RP1 with the Redundancy Payments Service
- RPS pays statutory redundancy directly (up to the same cap as the formula would produce)
- Holiday pay and notice pay are recoverable up to statutory caps (~£719/week for 2026/27)
- Enhanced redundancy above statutory: claim as unsecured creditor
RPS processes typically take 3-6 months. The protection covers most working-class redundancies fully and doesn't cover enhanced amounts for senior employees.
Practical checklist
- Confirm the agreement is in writing — settlement-agreement form is best
- Verify the schedule specifies tax treatment of each instalment
- Assess employer solvency — instalments are only safe with healthy employers
- Structure the £30,000 tax-free portion to be the first instalment
- Consider tax-year boundaries if the package is large enough to warrant splitting
- Reserve enforcement rights in the agreement (acceleration, tribunal access)
- Get independent legal advice before signing — usually employer-funded for settlement agreements
In short
Yes, UK redundancy can be paid in instalments — but only with your written consent and best documented within a settlement agreement. Each instalment is taxed in the tax year received; the £30,000 threshold applies to the redundancy aggregate. The main benefits are tax-year spreading for large packages and employer cash-flow accommodation. The main risk is employer insolvency mid-way through the schedule. Get independent legal advice before agreeing. For the broader cluster see the redundancy hub → and settlement agreements →.