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Tax category checker

Settlement Agreement Tax Checker

What this checker helps with

Use it to split a settlement package into plain-English categories before you decide whether the tax treatment looks sensible.

Use it to separate items that are usually taxed like earnings, such as PILON, holiday pay and wages, from amounts that may be treated as qualifying termination-payment elements.

Important:

This is a first-check tool, not legal or tax advice. It helps you ask better questions before you sign or rely on a headline figure.

Reviewed against official guidance
Built around GOV.UK tax guidance and Acas settlement guidance
Plain-English breakdown
Shows which parts look like earnings and which parts may sit in the termination-payment category
Next-step guidance
Helps you decide whether to check final pay, redundancy, or the written agreement next
What this page covers

Statutory redundancy pay, enhanced severance or compensation-style amounts, PILON, holiday pay, and unpaid wages or bonus.

What this page does not cover

Personal tax advice, payroll calculations, PENP detail calculations, or every clause in a settlement agreement.

Before relying on the tax split
  • Separate earnings-style items from compensation-style items.
  • Do not treat the tax split as a verdict on whether the offer is fair overall.
  • Check the written breakdown, the wording of the agreement and whether independent advice is being paid for.
Reviewed against official guidance

Last reviewed: 28 March 2026. This page is designed as a practical first-check page built around official GOV.UK and Acas guidance where applicable.

About this page

See the methodology page for how WorkRightsUK uses official sources, scope limits, and next-step routing.

Open methodology page

If your package mainly contains PILON, holiday pay, and wages

Your question is often closer to final pay and taxable earnings than to a pure “tax-free settlement” question.

If your package mainly contains statutory redundancy and extra compensation

Your question is often about how much sits within the £30,000 termination-payment threshold and what sits above it.

If you are not sure which label fits

Use the comparison page below this tool. That is faster than guessing your way through multiple pages.

Reviewed status

Last reviewed: 28 March 2026

Purpose: help users understand the shape of a package before specialist advice.

Core rule points used

  • The first combined £30,000 of certain qualifying termination-payment elements may be tax free.
  • PILON is generally taxable.
  • Holiday pay and unpaid wages are generally taxable as earnings.
  • A settlement agreement must meet legal conditions to be valid, including independent advice.
What to verify before you sign

Check exactly which amounts are described as PILON, holiday pay, wages, redundancy pay or compensation. Then check whether the written agreement and payroll treatment match that breakdown.

If you mainly want the statutory redundancy figure

Go to the redundancy calculator instead of using this page as a general redundancy tool.

Open redundancy calculator

If you mainly want final-pay components

Use the final-pay help page to understand notice pay, holiday owed, and wages first.

Open final pay page

If you are not sure which issue you have

Use the comparison page to quickly identify whether your issue is redundancy, settlement structure, or final pay.

Open comparison page

Check next:

If the real question is fairness, minimum entitlements, or clause risk, do not stop at the tax figure. Use the settlement help page and route onward from there.

Open settlement next-step page

Official sources used

Source and review block

GOV.UK: What you pay tax and National Insurance on

Used for the point that the first combined £30,000 of qualifying termination-payment elements may be tax free, but PILON and similar earnings are taxed differently.

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GOV.UK: Tax and National Insurance on redundancy payments

Used for the simpler framing that statutory redundancy pay under £30,000 is not taxable and that holiday pay and unpaid wages are treated differently.

Open official source

Acas: using settlement agreements

Used for the legal validity conditions, including the requirement for advice from a relevant independent adviser.

Open official source