Settlement Agreement Calculator UK 2026
Work out exactly what your settlement agreement is worth - including statutory redundancy pay, notice pay (PILON), accrued holiday, ex-gratia compensation, and your £30,000 tax-free allowance. Covers 2025/26 rates, Scottish income tax, and all major UK employment claims. For context on your rights, see our employment rights tools.
Key Settlement Agreement Facts 2025/26
Who Can Use This Calculator?
Employees Facing Redundancy
Check if your settlement offer is fair and calculate your statutory entitlements including redundancy pay, notice, and unused holiday.
Unfair or Constructive Dismissal
Estimate compensation value if you have been unfairly dismissed or forced out, and understand what settlement amount to expect or negotiate towards.
Negotiating a Settlement
Understand the components of your package before negotiating. See how gross offer amounts translate to net take-home after tax and your £30,000 tax-free allowance.
HR Professionals and Employers
Estimate the cost of exiting an employee and model different settlement structures to understand tax implications on both sides of an agreement.
Calculate Your Settlement Agreement
How This Settlement Agreement Calculator Works
1. Enter Employment Details
Input your salary, years of service and age. These three factors determine your statutory redundancy entitlement using the 2025/26 £719 weekly cap.
2. Add Settlement Components
Enter the notice pay, ex-gratia compensation, holiday owed, bonuses and any employer legal fee contribution that form part of your package.
3. Assess Your Claims
Tick any employment claims you have. The calculator uses claim type, strength and employer procedure to estimate your negotiation multiplier and realistic settlement range.
4. Get a Full Breakdown
See your total gross settlement, tax-free elements (up to £30,000), PILON tax, net take-home, and what a fair negotiated settlement might look like.
Understanding Your Settlement Agreement in 2026
A settlement agreement (formerly called a compromise agreement) is a legally binding contract between you and your employer. It settles all employment claims in exchange for a financial payment. To be valid, you must receive independent legal advice from a qualified solicitor.
The £30,000 Tax-Free Allowance
The most important tax rule in any settlement is the £30,000 exemption under Section 401 of the Income Tax (Earnings and Pensions) Act 2003. Genuine compensation payments - including statutory redundancy pay and ex-gratia sums - can be paid free of income tax and National Insurance up to this limit. Any amount above £30,000 is taxed at your marginal rate.
Notice pay (PILON) does not count towards this exemption. Since April 2018, all payments in lieu of notice are fully taxable under the Post-Employment Notice Pay (PENP) rules. You can use our take-home tax calculator to work out the net value of any taxable element.
Statutory Redundancy Pay 2025/26
Statutory redundancy is calculated using age bands, years of service (capped at 20 years), and weekly pay (capped at £719 from 6 April 2025). The multiplier is 0.5 weeks per year under age 22, 1 week per year aged 22-40, and 1.5 weeks per year aged 41 and over. The maximum is £21,570. See our redundancy pay calculator for the full statutory calculation.
| Age Range | Weeks Per Year of Service | Example (5 years, £719/week) |
|---|---|---|
| Under 22 | 0.5 weeks | £1,797.50 |
| 22 to 40 | 1 week | £3,595.00 |
| 41 and over | 1.5 weeks | £5,392.50 |
Notice Pay - PILON and Garden Leave
If your employer pays you instead of requiring you to work your notice (PILON), this is treated as normal earnings and is fully subject to income tax and National Insurance. Garden leave - where you remain employed but do not attend work - is also taxable. Both are processed through PAYE. Check your notice period entitlement to confirm your contractual and statutory notice rights.
Injury to Feelings - Vento Bands 2025
Discrimination claims can include injury to feelings awards. The Vento bands from April 2025 are: Lower band £1,200-£12,100 (isolated incident); Middle band £12,100-£36,400 (serious or sustained); Upper band £36,400-£60,700 (most serious cases). In exceptional cases, awards above £60,700 are possible. These payments are tax-free in a settlement agreement where there is a genuine injury to feelings rather than a financial loss. See our discrimination compensation calculator for more detail.
💡 Negotiation - What to Expect
Initial settlement offers are rarely final. Professional negotiation typically achieves a 20-50% improvement on the opening offer. Employers with large corporations or clear procedural failures can often offer substantially more. Always obtain independent legal advice before signing - your employer is legally required to pay a contribution towards your legal fees, typically £350-£750 plus VAT, paid directly to your solicitor.
Real Settlement Agreement Examples 2026
Scenario 1: Standard Redundancy
Person: Mark, 38, Project Manager
Salary: £52,000 | Service: 7 years
Situation: Genuine redundancy, full consultation process followed
Statutory redundancy: £5,033 (7 x £719)
PILON (3 months, taxable): £13,000 gross → ~£8,200 net
Ex-gratia: £10,000 (tax-free, within £30k)
Holiday owed (8 days): £1,600 (taxable)
Legal contribution: £600 + VAT (tax-free)
Total gross package: £29,633
Mark receives roughly 6.8 months salary. All redundancy and ex-gratia falls within the £30,000 allowance, so no tax is owed on those elements. PILON is taxed at 40% (higher rate).
Scenario 2: Unfair Dismissal with Discrimination
Person: Sarah, 45, Senior HR Manager
Salary: £68,000 | Service: 12 years
Situation: Age discrimination, no formal procedure followed
Statutory redundancy: £12,942 (18 x £719)
PILON (6 months, taxable): £34,000 gross → ~£20,400 net
Ex-gratia + discrimination: £22,000 (tax-free, within £30k)
Injury to feelings (middle band): £15,000 (tax-free)
Legal contribution: £1,500 + VAT (tax-free)
Total gross package: £85,442
Sarah's strong discrimination claim and poor employer procedure significantly increased her settlement. Combined statutory redundancy plus ex-gratia stays within the £30,000 tax-free limit. Injury to feelings is separately tax-free.
Scenario 3: Constructive Dismissal Exit
Person: James, 29, Software Developer
Salary: £42,000 | Service: 3 years
Situation: Constructive dismissal - manager bullying, ignored grievance
Notice pay (2 months, taxable): £7,000 gross → ~£5,600 net
Ex-gratia compensation: £18,000 (tax-free, within £30k)
Injury to feelings (lower band): £6,500 (tax-free)
Holiday owed (5 days): £807 (taxable)
Legal contribution: £600 + VAT (tax-free)
Total gross package: £32,907
James resigned under constructive dismissal, so no statutory redundancy applies. His ex-gratia and injury to feelings payments together are under £30,000 and both tax-free. Learn more about his rights using our constructive dismissal calculator.
Frequently Asked Questions
The first £30,000 of genuine compensation payments (including statutory redundancy and ex-gratia sums) can be paid free of income tax and National Insurance. Notice pay (PILON) cannot use this allowance - it is always fully taxable. Injury to feelings payments in discrimination claims are separately tax-free. Pension contributions paid directly to a registered scheme are also tax-free with no limit.
From 6 April 2025, weekly pay for redundancy calculations is capped at £719. The maximum statutory redundancy payment is £21,570 (20 years x £719 x 1.5 for employees aged 41 and over). If your weekly earnings exceed £719, the cap applies to the statutory calculation - though your employer may pay an enhanced amount on top. Use our redundancy pay calculator for the full breakdown.
Yes, always. Since April 2018, all PILON payments are subject to income tax and National Insurance under the Post-Employment Notice Pay (PENP) rules. It makes no difference whether your contract includes a PILON clause or not. Your employer must deduct tax through PAYE before paying it. PILON cannot be included within the £30,000 tax-free allowance.
Yes. Initial offers are rarely the best offer. Professional negotiation typically achieves 20-50% improvements on the opening figure - sometimes substantially more where there are discrimination or whistleblowing claims. Your employer's legal fee contribution (paid to your solicitor) means advice often costs you nothing. Our salary negotiation calculator can help you understand your negotiating position.
Yes, this is a legal requirement. A settlement agreement is only valid if you have received independent legal advice from a qualified solicitor, barrister or certified trade union representative. In practice, employers almost always pay a legal fee contribution (typically £350-£750 plus VAT) direct to your solicitor. This contribution is tax-free with no limit.
Most employment claims can be settled, including unfair dismissal, constructive dismissal, discrimination (age, sex, race, disability), breach of contract, harassment, whistleblowing, and unpaid wages. Some rights cannot be waived - these include accrued pension rights, personal injury claims you are unaware of at signing, and TUPE transfer rights.
If you leave employment voluntarily (or resign), you may face a benefit sanction period. If you are made redundant or dismissed, you can claim from your first day of unemployment. Settlement payments are treated as capital: if they take your savings above £16,000, you will not qualify for Universal Credit until the capital reduces. Use our Universal Credit calculator to check your entitlement.
Most agreements are finalised within 5 to 21 days. The ACAS Code of Practice requires your employer to give you at least 10 calendar days to consider the offer. More complex cases involving multiple claims or senior executives can take longer. Your employment end date may be later than the signing date, particularly if garden leave is involved.
Data Sources and Accuracy
This calculator uses official UK government figures and HMRC rules for 2025/26:
- Statutory redundancy pay cap (£719/week): GOV.UK - Redundancy Pay
- £30,000 tax-free termination limit: HMRC EIM13000 - Termination Payments
- PILON / PENP tax rules (post April 2018): HMRC EIM13876 - PENP Calculation
- Income tax rates and bands 2025/26: GOV.UK - Income Tax Rates
- Vento bands (April 2025): Employment Tribunal Service - Vento Guidelines
- Employment tribunal compensation limits: GOV.UK - Tribunal Limits
Methodology: Statutory redundancy is calculated using HMRC's age band and service year rules. Tax is calculated using 2025/26 income tax bands and NI thresholds. The £30,000 tax-free calculation correctly separates PILON (always taxable) from compensation (tax-free up to £30,000).
Last Updated: February 2026
Disclaimer: This calculator provides estimates for informational and guidance purposes only. It is not legal or tax advice. Settlement agreement values depend on individual circumstances, negotiation, and the specific terms agreed. Always obtain independent legal advice from a qualified employment solicitor before signing any settlement agreement. FastJobs.uk accepts no liability for decisions made based on this tool.
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