What should I check before signing a settlement agreement?

Get a line-by-line payment schedule, independent legal advice, and a clear picture of take-home and benefits impact before you sign. A settlement agreement is binding and normally waives your right to bring employment tribunal claims. You must receive advice from a qualified independent adviser for the agreement to be valid (ACAS).

Payment breakdown checklist

  • Statutory redundancy — verify against GOV.UK if applicable
  • Enhanced / ex-gratia compensation — what qualifies for £30,000 tax-free treatment?
  • PILON / notice — taxable earnings; may affect UC as earnings not capital
  • Holiday pay and unpaid wages — taxable
  • Any amount above £30,000 qualifying payments — marginal tax, no employee NI on excess
  • Payment dates for each component
  • Employer legal fees contribution — who is it paid to?

Tax and take-home

Do not assume “total minus £30,000” is your take-home. Model each line separately.Settlement agreement tax guide ·Take-home guide.

Universal Credit (if relevant)

Qualifying termination payments may count as capital when received. PILON and holiday pay may count as earnings in assessment periods after you claim. This may affect tariff income or earnings taper — an illustrative estimate only, not entitlement.

Non-financial terms to review with your solicitor

  • Reference — agreed wording?
  • Restrictive covenants — non-compete, non-solicit, confidentiality
  • Termination date and garden leave
  • Return of company property and final expenses
  • Waiver of claims — what claims are included?

Before you sign

  1. Independent legal advice taken (required for validity)
  2. You understand each payment line and tax treatment
  3. You have modelled illustrative take-home (and UC impact if claiming)
  4. You know when money will arrive
  5. Non-financial terms reviewed by your adviser
  6. You have not been pressured on timing without advice

Related guides

Model the agreement figures

Enter each payment line from your draft agreement and see illustrative take-home and UC capital position.

Use the calculator

This checklist is general information, not legal advice. Settlement agreements must be reviewed by your independent legal adviser. Sources: ACAS, GOV.UK. Last reviewed September 2026.