Introduction
A mutually agreed resignation scheme — often referred to as MARS or a ‘MAR Scheme’ — is a formal process some employers use when they want to reduce headcount. It is not the same as voluntary redundancy. Instead, the employer invites volunteers to leave on agreed terms, creating vacancies that can then be used to redeploy other employees whose roles are at risk.
MARS is particularly common in the NHS, where it is governed by Section 20 of the Agenda for Change terms and conditions. With significant national restructuring currently under way across NHS England — with timelines running into 2026 — large numbers of NHS staff are being offered MARS or voluntary redundancy packages.
But MARS schemes are used outside the NHS, by local authorities and other public and governmental employers, such as the recent Bank of England MARS.
If you are one of the employees contemplating leaving under a MARS settlement agreement, it is important to understand exactly what you are being offered before you agree to anything.
MARS and Voluntary Redundancy: What Is the Difference?
This is one of the most important distinctions to grasp, and one that employers do not always make clear.
Voluntary redundancy under the NHS is governed by Section 16 of the Agenda for Change handbook. For long-serving staff, it can be worth significantly more — in some cases up to 24 months’ salary. MARS payments, by contrast, are typically less generous. You are also resigning under a MARS rather than being made redundant, which can affect your entitlement to certain benefits and your position in relation to future redundancy processes.
The Royal College of Nursing has formally opposed the use of NHS MARS schemes on the basis that they undercut redundancy rates, require employees to resign rather than be made redundant (which can affect pension, benefits and mortgage eligibility), and often involve agreeing to additional terms — such as non-disclosure obligations and waivers of future claims — that would not arise in a standard redundancy.
By way of example: employee ‘A’ has five years’ service as an administrator and elects to leave under MARS with a modest severance payment. The employer later restructures and employee ‘B’ – in a similar role is placed at risk of redundancy. Employee ‘B’ has 20 years’ service and would be entitled to a substantial redundancy payment. Instead, ‘B’ accepts the vacant role left by ‘A’. The employer achieves its headcount reduction at a fraction of the cost. That is the commercial logic of MARS — and it is worth understanding whose interests the scheme is primarily designed to serve.
How Does a Mutually Agreed Resignation Scheme Work?
The mechanics vary between employers, but the typical process is:
- The employer announces that it is inviting applications from employees who wish to leave voluntarily.
- Interested employees apply within a set window.
- The employer considers applications and either accepts or declines them.
- Those whose applications are accepted leave on agreed terms, usually documented in a settlement agreement.
In the NHS, individual MARS proposals require approval through a formal process involving the Trust’s Remuneration Committee, the NHS England Regional Workforce Team, and — depending on the type of organisation — the NHS England Trust Governance and Advisory Team or the Executive HR Group at national level. This matters because the terms on offer are not simply a matter for your employer to decide unilaterally.
MARS and Settlement Agreements: What Is the Connection?
In most cases, a MARS exit will be documented through a statutory settlement agreement — a legally binding contract that settles any employment claims you might otherwise bring, including claims for unfair dismissal, discrimination, or unpaid entitlements.
Once you have the required indepenent legal advice, usually from an independent solicitor that does not work for your employer, and you sign a valid settlement agreement, you give up your right to pursue those claims in the Employment Tribunal. That is a significant step. Under section 203 of the Employment Rights Act 1996, a settlement agreement is only legally binding if:
- It is in writing.
- It relates to a specific complaint or proceedings.
- You have received independent legal advice from a relevant independent adviser before signing.
- The adviser’s details are confirmed in the agreement.
The requirement for independent legal advice is a legal safeguard, not a formality. Your employer will usually contribute towards the cost of that advice. Make sure you use it properly and instruct a specialist employment solicitor.
Is a MARS Payment Taxable?
The first £30,000 of a genuine termination payment — is generally free from income tax and National Insurance contributions under section 403 of the Income Tax (Earnings and Pensions) Act 2003. Payments above that threshold are taxable.
However, if any part of your MARS payment is effectively a payment in lieu of notice (PILON) or post employment notice pay (PENP) that element will be subject to tax and National Insurance regardless of how it is labelled. Your settlement agreement should clearly separate any redundancy or termination payment from notice pay to avoid mistakes and unexpected issues later.
You can find further guidance on the tax treatment of termination payments in our tax on settlement payments guide. on the HMRC Employment Income Manual.
Can Your Employer Refuse Your Application?
Yes. Despite the word “mutually” in the name, an employer is under no obligation to accept your application. The decision is at the employer’s discretion, and they may decline if they consider your role business-critical or if the number of applicants exceeds what the organisation can absorb.
Equally, you are under no obligation to apply.
What Should You Watch Out For?
The financial package. Compare the sum on offer against your statutory redundancy entitlement, your contractual redundancy rights (which in the NHS and other public and governmental employers may be significantly more generous), your notice entitlement, bonuses and any benefits you would lose on leaving early. An enhanced offer under MARS is not always competitive when measured against what you would receive if your role were made redundant through a proper process.
Whether MARS is actually the right route. If compulsory redundancies are anticipated — or if the vacated post is unlikely to be filled — there is a question as to whether MARS is the appropriate mechanism at all. The RCN has specifically raised the concern that where vacated posts are not filled, a MARS exit may in substance constitute a redundancy situation, with the employee having signed away the rights that would ordinarily attach to it.
The settlement agreement terms. What claims are you being asked to waive? Are the confidentiality clauses and non-disparagement obligations lawful and appropriate? Are any post-termination restrictions included? These can all affect your ability to work — or speak — after you leave.
References. Will the agreement commit your employer to providing an agreed work reference?
Timing. Could staying longer affect your bonus, pension, or other entitlements?
Do You Have to Accept a MARS Offer?
No. Participation is voluntary. If you have concerns about being pressured into applying, or if you believe you are being singled out because of a protected characteristic — such as age, disability, or pregnancy — you may have grounds for a separate legal claim that should not be signed away without careful consideration.
Getting Legal Advice on a MARS
Whether you are considering applying under a MARS or have already been offered terms, taking independent legal advice from a solicitor early puts you in the best position. A specialist employment solicitor can assess the financial package against your redundancy entitlement, identify any problematic clauses, and advise whether you may have additional claims worth considering before you sign.
At settlementagreement.co.uk, we advise employees across the UK on settlement agreements, including those arising from mutually agreed resignation schemes. We offer clear, straightforward advice — and as per our costs promise, the solicitors fees for advising on the terms are fixed at amount your employer agrees to pay in the settlement agreement.
For a confidential chat with a specialist employment solicitor please call 0800 861 1883 or request a call back.
Legal Disclaimer
The contents of this article are intended to be for general information purposes only and do not amount to (nor are they intended to be) legal, tax or financial advice or a complete or authoritative statement of the law nor should they be treated as such. No warranty or promise is given, express or implied, as to accuracy of the information on this page and no liability is accepted for any error or omission. You should instruct a specialist employment solicitor to advise you on your particular situation and not act or rely on the information on this page.
