Settlement Agreement Calculator
Updated November 2026 · Free · No sign-up
Calculate your settlement agreement net — splitting the package into earnings elements (notice/PENP, holiday, bonuses — taxed), the £30,000-exempt compensation, and the special categories (pension, legal fees, some discrimination awards).
Quick answer: Settlement packages split into: taxed as earnings (PILON/PENP, accrued holiday, contractual bonuses, restrictive-covenant payments); tax-free to £30,000 (ex-gratia compensation, statutory redundancy); and fully exempt (employer legal-fee contributions, direct pension payments, pre-termination discrimination injury-to-feelings in limited cases).
The Element Map
| Element | Treatment |
|---|---|
| PILON / PENP | Earnings — PAYE + NI (see the PENP page) |
| Accrued holiday | Earnings — always |
| Contractual bonus/commission | Earnings |
| Restrictive covenant consideration | Earnings (s.225) |
| Ex-gratia compensation | Tax-free to £30,000; income tax (not employee NI) above; employer NI above too |
| Statutory redundancy | Within the £30k band |
| Employer legal-fee contribution | Exempt (paid direct to the solicitor, agreement-worded) |
| Direct pension contribution | Exempt within annual allowance |
Worked Example
£40,000 ex-gratia + £8,000 PENP + £2,000 holiday, 40% payer: earnings elements net ~£5,200 of £10,000; ex-gratia = £30,000 free + £10,000 × 40% → net 36,000. Total net ≈ £41,200 of £50,000. Redirecting the above-30k £10,000 into pension instead: exempt — net becomes £35,200 cash + £10,000 pension (gross!) — the standard adviser move.
Process Rights
A settlement agreement needs YOUR independent adviser (employer customarily funds £350-750 + VAT) — use that meeting to audit the tax split, the reference wording, and whether the waiver covers only what it should. Without-prejudice offers via "protected conversations" (s.111A) have their own discoverability limits.
Negotiation Levers
Tax-efficient restructuring (pension redirection, fee funding), the reference and announcement wording, outplacement, and keeping bonus/LTIP entitlements that would vest in the notice window — each often worth more than headline-sum haggling. Discrimination claims’ injury-to-feelings bands (Vento) are taxable when connected to termination — pre-termination discrimination stands apart; specialist advice pays for itself here.
Frequently Asked Questions
How much of a settlement is tax-free?
Ex-gratia compensation and statutory redundancy up to £30,000 combined — notice-equivalent pay, holiday, and contractual sums are always taxed as earnings first.
Is the above-£30k slice NI-free?
Employee NI, yes; income tax applies, and employers pay Class 1A NI on it — the net still beats earnings treatment.
Are legal fees taxable?
Employer contributions paid directly to your adviser under the agreement’s terms are exempt — standard practice.
Can I put settlement money into my pension?
Employer-direct contributions from the package are tax and NI free within your annual allowance (including carry-forward) — usually the best home for the above-£30k slice; take advice.
Do I need a solicitor?
Yes — a settlement agreement is only binding with independent legal advice, which the employer customarily funds; use the session to audit the tax split too.
✓ Formula verified • Last updated: November 3, 2026