Notice pay, holiday pay and final salary are usually taxed like normal employment income. In most cases, your employer runs them through PAYE, so Income Tax and employee National Insurance are deducted before you are paid.
Your final payslip can still look unusual. That is because several items are often paid at once, such as salary up to your leaving date, pay for unused holiday, contractual notice pay, overtime, commission or a bonus. A larger one-off payroll amount can mean more tax is deducted in that particular pay run.
Is notice pay taxed in the UK?
Yes. Notice pay is usually taxable. If you work your notice and receive normal wages, it is taxed exactly like your usual pay through PAYE.
If you do not work your notice but your employer still pays you for it, that payment is also often taxable. For most employees, notice pay connected to employment is treated as earnings and can be subject to Income Tax and employee National Insurance in the same way as salary.
The practical point is simple: being paid instead of working your notice does not automatically make the payment tax-free. On your payslip, it may appear as notice pay, payment in lieu of notice, or a similar label, but it is commonly processed with the rest of your taxable pay.
Is unused holiday pay taxed when you leave a job?
Yes. Pay for unused holiday is normally taxable pay. If you have built up annual leave that you did not take, your employer can pay you for those days when you leave, and that amount is usually treated as wages.
That means PAYE tax applies, and employee National Insurance can apply too. If you repay holiday because you took more leave than you had accrued, the adjustment may reduce your final gross pay instead. The exact presentation varies by employer, but it still feeds into the final payroll calculation.
What is included in a final salary payment?
A final salary payment often includes more than just your last few days of work. That is why the deductions can look larger than on a normal monthly payslip.
Salary up to your leaving date
Pay for any unused holiday
Notice pay or payment in lieu of notice
Overtime, commission or bonuses due
Statutory payments still owed
Deductions for holiday taken but not accrued, training costs or other agreed adjustments
Most of these amounts are handled through payroll as taxable earnings. If several are combined in one month or one week, your payslip may show a much higher gross amount than usual, which can push more of that single pay period into higher-rate tax treatment under PAYE.
Why does my final payslip look overtaxed?
Usually, your final payslip looks overtaxed because payroll only sees that pay period, not your whole year in a simple way. If your employer pays salary, holiday pay and notice pay together, the system may treat that run as if you regularly earn at that higher level.
For Income Tax, PAYE works using your tax code and pay frequency. For National Insurance, the calculation is generally done per pay period rather than across the whole tax year in the same way. So a large final monthly payment can produce noticeably higher deductions than you expected.
That does not always mean the tax is wrong overall. If too much Income Tax has been deducted by the end of the tax year, you may later receive a refund through payroll, from a new job, or from HMRC. National Insurance is different and is not usually recalculated across separate monthly periods in the same way.
How much tax and National Insurance could apply to final pay?
The amount depends on your total taxable pay in the payroll run and your tax code. For 2026/27, most employees have a Personal Allowance of £12,570, which starts to reduce once income goes over £100,000. Basic-rate tax is 20%, higher-rate tax is 40%, and additional-rate tax is 45%.
Employee National Insurance is usually 8% on earnings between £12,570 and £50,270, and 2% above that. In a final pay packet, those NI rates can apply to the earnings in that pay period under the normal payroll rules.
If you repay a student loan through PAYE, your final pay can also trigger a larger deduction. For 2026/27, annual thresholds are £26,900 for Plan 1, £29,385 for Plan 2, £33,795 for Plan 4, £25,000 for Plan 5, and £21,000 for Postgraduate loans. A bigger final payslip can therefore lead to a bigger student loan deduction too.
Are final salary payments taxed differently from redundancy pay?
Yes. Final salary payments are not the same thing as genuine redundancy compensation. Ordinary pay, holiday pay and notice pay are generally treated as taxable earnings through payroll.
People often confuse these amounts because they can all be paid when employment ends. But your final salary payment is usually just employment income that happens to be paid at the end of the job. If redundancy compensation is also involved, it should be shown separately from normal earnings on your paperwork.
How can you check if your final payslip is correct?
Start with the payslip breakdown. Check each payment line and each deduction line, rather than only the net figure. Final payslips are often correct, but the mix of items can make them hard to follow at a glance.
Check your leaving date and the salary paid up to that date
Check how many unused holiday days were paid
Check whether notice pay was included
Review your tax code on the payslip
Check Income Tax, employee National Insurance and any student loan deduction separately
Compare the figures with your contract, holiday balance and final pay letter
If something still looks off, ask payroll or HR for a written breakdown. They can usually explain whether the amount came from salary, holiday, notice, or another payroll item. It is easier to spot a genuine error once each part is separated out.
Can you get tax back if too much was taken from your final pay?
Yes, sometimes. If too much Income Tax is deducted from your final pay, it can often be corrected later. What happens next depends on whether you start a new job in the same tax year, whether payroll updates your records, and what HMRC holds on file.
A refund may be made through a later payslip in a new job, through your old employer if the payroll is still open and a correction is made quickly, or directly by HMRC after the tax year position is reviewed. This is general information, not regulated financial advice, but it is common for final-pay tax questions to be resolved once the year’s records are complete.
What should you expect from your last payslip?
Expect your last payslip to include all pay owed up to your leaving date, with tax deductions processed through PAYE. If you have unused holiday or notice pay, those amounts are usually added as taxable earnings rather than paid separately on a tax-free basis.
The key point is that a high deduction on your last payslip does not automatically mean something has gone wrong. It often reflects the fact that several taxable payments have been compressed into one payroll run. If you want to estimate the effect on your take-home pay, running the figures through a salary calculator can help you compare the gross payment with the likely deductions.