Settlement agreement calculator
In a settlement agreement, notice pay and holiday pay are taxed like wages, while compensation and statutory redundancy pay share a £30,000 tax-free allowance. Enter the amounts in your offer to see what is taxed and roughly what you keep.
You’ll need the draft agreement or offer letter, which should list each payment, and your top rate of income tax. Your adviser can help you split a single lump sum.
Your result
Enter at least one amount from your offer.
£30,000 tax-free threshold. Your inputs stay in this browser.
Figures checked 25 October 2026 Reviewed by [Employment law reviewer] Sources
How the tax works
HMRC treats the two groups of payments differently. Anything that is pay for work or for notice, including unused holiday and post-employment notice pay, goes through payroll with income tax and employee National Insurance. Payments for losing the job itself, such as statutory redundancy pay, enhanced redundancy and an ex gratia sum for giving up claims, are tax free up to £30,000 in total. Above £30,000 they are taxed at your rate, and your employer pays Class 1A National Insurance on the excess, not you.
Tax estimate = (pay items + termination payments over £30,000) × your top rate This is an estimate at one rate. Your real tax depends on your other income in the tax year, and a large payment can push part of it into a higher band. The calculator also leaves out employee National Insurance on the pay items.
Worked example
An offer includes £6,000 notice pay, £1,200 holiday pay, £8,000 redundancy pay and £25,000 compensation. The pay items, £7,200, are taxed. The termination payments come to £33,000, so £30,000 is tax free and £3,000 is taxed.
At 40%, tax is about (£7,200 + £3,000) × 40% = £4,080. From £40,200 in total, you would keep about £36,120 before National Insurance on the pay items.
Is the offer fair?
Compare the compensation part with what a tribunal might award if you have a claim. Use the unfair dismissal compensation calculator for a rough benchmark, and check the statutory redundancy pay you are owed anyway. An offer below what you are already entitled to is not a settlement.
Questions people ask
Is a settlement agreement payment tax free?
Partly. Compensation for losing your job, including statutory redundancy pay, is tax free up to £30,000 in total. Anything above that is taxed at your normal rate. Notice pay, holiday pay, wages and bonuses are taxed as earnings with National Insurance, even if the agreement calls the whole sum “compensation”.
Who pays for legal advice on a settlement agreement?
A settlement agreement is only binding if you have had advice from an independent adviser, such as a solicitor or a certified trade union official, who is named in it. Employers usually contribute to the cost. Legal fees your employer pays straight to your solicitor for the agreement are not taxed.
How much should I ask for in a settlement agreement?
There is no fixed amount. Start with what you are owed anyway (notice, holiday, any redundancy pay), then add a sum for giving up your claims. A rough unfair dismissal award is a sensible benchmark for that extra sum, which is why the calculator links to one. Your adviser will weigh how strong your claims are.
How long do I get to consider a settlement agreement?
Acas recommends a minimum of 10 calendar days. If you need longer to get advice, ask in writing.
What is post-employment notice pay?
If you leave without working your full notice, HMRC treats the basic pay you would have earned during the unworked notice as taxable earnings, even if it is paid as part of a lump sum. Your employer works this out as post-employment notice pay (PENP). Enter it as notice pay in the calculator.
Sources
This calculator gives general information, not legal or financial advice. A court, tribunal, the Home Office or the scheme administrator makes the actual decision. Read the disclaimer, and for advice on your own situation speak to a regulated adviser, a solicitor or Citizens Advice.