Settlement Agreement Tax Estimator
Estimate the tax-free portion of your payoff (PENP Calculator)
Common Questions
How does HMRC calculate PENP?
The standard HMRC formula is: ((BP x D) / P) - T. Where BP is basic pay, D is the number of days in the notice period not served, P is the number of days in the pay period, and T is any notice pay already taxed.
What if my offer is over £30,000?
Any amount over £30,000 (after PENP is deducted) is subject to income tax at your usual marginal rate and employer National Insurance. You usually do not pay employee National Insurance on the portion above £30k, but you do on the PENP portion.
Enter your offer details to see how much you will keep after tax.
2026 Tax Rules
- Tax-Free Limit: £30,000
- PENP Portion: Always Taxed
- Employee NI: Paid on PENP
- Employer NI: Paid over £30k
UK Settlement Agreement Tax and PENP Explained
Signing a settlement agreement is a major life event. Most employees are told that the first £30,000 of their payoff is "tax-free." While this is a general rule under Section 401 of the Income Tax (Earnings and Pensions) Act 2003, HMRC introduced the **Post-Employment Notice Pay (PENP)** rules to prevent tax avoidance.
PENP ensures that if you are being paid a lump sum to leave immediately, the portion of that money that "looks like" your notice pay is taxed as if you had worked it. This prevents employers from paying "notice in lieu" tax-free. Our 2026 estimator uses the HMRC simplified formula to help you negotiate your settlement with confidence.
Why You Need a PENP Calculation
Negotiating a "net" figure is often impossible because tax depends on your personal circumstances. However, knowing your PENP allows you to understand exactly how much of your payoff will attract National Insurance and Income Tax. This is particularly important for high earners or those with long notice periods (3-6 months), where the PENP can sometimes consume the entire £30,000 exemption.