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Settlement Agreement Tax Checker

What this checker helps with

Use this checker when you have a draft agreement, written breakdown or headline offer and need to see why the headline total may feel very different from the likely take-home result.

The aim is to stop one headline number hiding very different tax treatment. It separates items usually taxed like earnings, such as PILON, holiday pay and wages, from compensation-style amounts that need a different check before you rely on the offer.

That gets you closer to the real take-home question while still reminding you to check payroll treatment, agreement wording, legal-advice cover and the exact written labels before signing.

Important:

This checker does not calculate exact PAYE, National Insurance or PENP. Use it to split the package into the lines most likely to go through payroll first and the lines that may need a separate compensation-style check before you sign, negotiate or rely on a headline figure.

Checked against official sources
Checked against GOV.UK tax guidance and Acas settlement guidance
Headline total versus take-home
Shows which part of the package is most likely to drag the take-home figure down before you focus on the offer headline
Next-step guidance
Helps you decide whether to check final pay, redundancy, the written agreement or independent advice 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.

Use the written breakdown in this order before you trust the headline total
  • Separate payroll-style lines first: PILON, holiday pay, wages, bonus and similar items.
  • Then separate statutory redundancy and any extra compensation-style amount.
  • Only compare the headline total once the lines are split clearly on paper.
Start with the lines most likely to cut the take-home figure
  • Split PILON, holiday pay, wages and bonus away from compensation-style sums before you compare the total.
  • Look first at the payroll-style chunk, because that is often the part that makes the take-home figure feel lower than expected.
  • Use the result to check the written labels, not to replace payroll advice, tax advice or legal advice.
Agreement checks in the best order
  • Make sure PILON, wages, bonus and holiday are listed separately from compensation-style sums and not buried inside one total.
  • Check whether statutory redundancy pay and any extra severance are described clearly instead of being merged into one vague amount.
  • Check who is paying for the independent adviser and whether the draft reflects the same labels used by payroll.
  • Check whether the £30,000 threshold is being treated as a combined threshold across qualifying elements rather than a separate allowance for each line.
Headline total versus likely take-home: the quick check
  • If PILON, holiday pay, wages or bonus make up a large share of the package, the take-home figure can fall much faster than the headline number suggests.
  • If the package is mostly statutory redundancy and extra compensation, the real question is usually the written labels and the combined threshold check.
  • If the employer only shows one total, ask for the written line-by-line breakdown before you compare or negotiate.
Checked against official sources

Last reviewed: 28 March 2026. Checked against relevant GOV.UK and Acas guidance for common leaving-work payment issues.

Checked on

28 March 2026

Official source links

GOV.UK tax guidance and Acas settlement guidance linked below

Recheck when

Package labels, PILON wording, adviser-fee terms or tax treatment are unclear

Best use of this page

Use this page to work out whether the headline total is being driven by payroll-style lines or compensation-style lines. Then switch to final pay, redundancy or the settlement guide depending on which part still needs the closer check.

Open settlement guide

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

Your question is often closer to final pay and taxable earnings than to a simple compensation-threshold question.

If your package mainly contains statutory redundancy and extra compensation

Your question is often about how much sits within the combined £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.

Split the package first

Common labels in a mixed settlement package

  • Payroll-style items: PILON, holiday pay, wages, bonus or commission already earned.
  • Compensation-style items: statutory redundancy pay and extra severance or ex-gratia style sums.
  • Still check the wording: the label on the page should match the label used in the agreement and payroll breakdown.
What this often changes

Why the headline figure can mislead

A single headline total can bundle together amounts that are taxed through payroll with amounts that may sit inside the qualifying termination-payment rules. Separating those buckets first makes it much easier to judge the offer and choose the next page.

Page checks at a glance

Last reviewed: 28 March 2026

Aim: help users test whether the written labels, tax buckets and next route make sense before they rely on the headline number.

Key rule points on this page

  • 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

Split the package into payroll-style items, statutory redundancy, and extra compensation. Then check whether the written agreement, payroll labels and adviser-fee wording all 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 the headline total is being driven by PILON, holiday or wages

Use the final-pay help page first if the package feels tax-heavy because notice, holiday pay, wages or bonus make up a large share of the total.

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

Settlement FAQs

Questions people usually have after splitting the package

Why can the take-home figure feel much lower than the headline total?

Because payroll-style items such as PILON, holiday pay, wages and bonus are usually taxed as earnings. If those items make up a large share of the offer, the headline number can look much more generous than the likely net result even before you look at the compensation-style lines.

Does the £30,000 threshold apply to every line separately?

No. Treat it as a combined threshold across qualifying termination-payment elements, not as a separate allowance for each part of the package.

Should I check final pay before I focus on the settlement wording?

Often yes. If a large part of the package is really notice, PILON, holiday pay, wages or bonus, final pay is usually the better first route before you come back to the settlement wording and the compensation-style lines.

What must I still verify in the agreement itself?

Check the labels, the wording around notice or PILON, who is paying the independent adviser, and whether the written breakdown matches the same categories payroll will use.

Check next:

If the real question is fairness, minimum entitlements, or risky agreement wording, do not stop at the tax split. Use the settlement help page, then route into final pay or redundancy if the package is mixed.

Open settlement next-step page

Official sources used

Official sources checked for this page

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.

Open official source

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