How the NHS Mutually Agreed Resignation Scheme works
The Mutually Agreed Resignation Scheme (MARS) is a formal voluntary severance arrangement established under Section 20 and Annex 21 of the NHS Terms and Conditions of Service Handbook. It enables NHS trusts and health boards to restructure their workforce and generate recurrent savings by offering qualifying employees an agreed financial package in exchange for voluntarily resigning from their post.
Unlike compulsory redundancy under Section 16, MARS is voluntary on both sides. An employee applies for the scheme, and the employing trust decides whether to accept or decline the application based on business viability and affordability.
Under the standard national MARS framework, severance payments are calculated as one month of basic contractual pay for each completed year of continuous NHS service (or 0.5 months under half-rate tariffs), subject to a national cap of 21 months of basic salary and an overarching cash limit of £100,000. By contrast, contractual Section 16 compulsory redundancy provides one month per year up to 24 months, capped at £160,000.
Worked example: Band 6 employee with 10 years NHS service
Consider an NHS employee earning a basic Agenda for Change salary of £40,000.00 per year with 10 completed years of continuous NHS service, leaving under standard national MARS terms in the 2026/27 tax year with no payment in lieu of notice.
Gross severance calculation: Basic monthly pay equals £3,333.33 (£40,000.00 divided by 12). With 10 years of service at one month per year, the employee is entitled to 10 months of basic pay, producing a gross severance payment of £33,333.33. This falls well within both the 21-month maximum and the £100,000.00 cash ceiling.
Tax treatment: Under Section 401 of the Income Tax (Earnings and Pensions) Act 2003, qualifying voluntary severance compensation benefits from a statutory £30,000.00 tax exemption. The first £30,000.00 is completely free of Income Tax and employee National Insurance. The remaining £3,333.33 is taxable through PAYE.
Because the employee's base salary (£40,000.00) leaves ample headroom in the 20% basic rate bracket (up to £50,270.00), the £3,333.33 excess is taxed at 20%, resulting in £666.67 in Income Tax. Termination payments are legally exempt from employee Class 1 National Insurance.
Net payout: Deducting £666.67 tax from the £33,333.33 gross severance gives an overall net take-home lump sum of £32,666.66. By comparison, statutory redundancy minimum terms for 10 years of service would yield just £7,510.00.
Important rules and restrictions on NHS MARS payments
NHS staff considering a voluntary severance agreement should note several regulatory rules:
Tax exemption threshold: Only compensation for loss of employment qualifies for the £30,000 tax-free exemption. Contractual payments such as accrued untaken annual leave, outstanding overtime, and Payment in Lieu of Notice (PILON) are fully taxable for both Income Tax and employee National Insurance.
Return to the NHS: Employees who accept a MARS payment cannot return to employment within the NHS, in any capacity (including bank or agency work), within a prescribed exclusion period (commonly 6 months) without potentially being required to repay a portion of their severance package.
Pension implications: Unlike certain early retirement options, a MARS severance payout does not include an automatic unreduced early release of NHS Pension Scheme benefits. Employees taking their pension early may face actuarial reductions unless they have reached normal pension age.
Inputs for the NHS MARS calculator
Annual basic NHS salary
Your contracted annual basic salary under Agenda for Change (excluding variable overtime).
Years of continuous NHS service
Full completed years of aggregated continuous service across NHS organizations.
Severance scheme
Choose standard MARS (1 month per year), half-rate MARS (0.5 months), Section 16 redundancy (up to 24 months), or a custom multiplier.
Custom months' pay per year
The custom multiplier of monthly basic salary awarded per completed year of service (if custom scheme selected).
Maximum cash cap
The financial cap applied to the payout: £100,000 for standard MARS, £160,000 for Section 16, or uncapped.
Notice pay / PILON / untaken leave
Any contractual notice pay or accrued holiday compensation paid alongside the severance package (fully taxable under PAYE).
Tax year
The UK tax year determining income tax bands and Personal Allowance thresholds.
CALCULATOR QUESTIONS
NHS MARS calculator questions
What is the difference between NHS MARS and redundancy?
NHS MARS (Section 20) is a voluntary agreement between employee and employer to end employment with financial compensation, even when a post is not being deleted. Redundancy (Section 16) occurs when a specific role ceases to exist. Section 16 contractual redundancy pays up to 24 months capped at £160,000, whereas standard MARS pays up to 21 months capped at £100,000.
Are NHS MARS severance payments tax-free?
Under UK tax law (Section 401 ITEPA), the first £30,000 of a genuine voluntary severance payment is tax-free and exempt from employee National Insurance. Any severance amount above £30,000 is subject to Income Tax at your marginal rate.
Can I work in the NHS again after accepting a MARS settlement?
National MARS terms generally impose a return-to-service exclusion period (typically 6 months). If you take up employment with an NHS organization within this timeframe, your local agreement may require you to repay some or all of your severance settlement.
How is a month of pay calculated for NHS MARS?
A month of pay is calculated as one-twelfth of your annual basic salary under Agenda for Change, plus any permanent recurring contractual allowances (such as High Cost Area Supplements) where recognized by your local trust policy.