The Academy Trust Handbook 2026 has been published and introduces the most significant changes to the rules on staff severance payments in years. If your trust uses settlement agreements to manage staff exits, these changes affect you directly. 

From 1 October 2026, every trust will need to meet a new numerical prospects-of-success threshold, follow stricter DfE prior approval requirements for novel, contentious or repercussive payments, and maintain a full documented record of every decision. 

Confidentiality clauses in settlement agreements will always require DfE sign-off, and there's no safe harbour for payments under £50,000. 

In this article, we set out what's changed, what it means in practice for trustees, accounting officers, HR leads and finance teams, and the steps your trust should take now to be ready.

Background

The DfE provides an overarching framework for financial governance, management and other controls for academy trusts in England through the Academy Trust Handbook. Compliance with its requirements is a condition of the funding agreement between each trust and the Secretary of State for Education. The 2026 edition is effective from 1 October 2026.

The most significant changes for HR and finance teams concern what they must do when dealing with staff severance payments (paragraphs 5.7 to 5.14). These changes will materially affect how trusts manage agreed staff exits and settlement agreements. 

What is a special staff severance payment?

Special staff severance payments ('SSSPs') are paid to employees outside statutory or contractual requirements when leaving public sector employment. They are different to compensation or ex gratia payments. In practical terms, if your trust is offering a departing employee anything beyond what they are legally entitled to under statute or their contract - for example through a settlement agreement - the SSSP rules apply. 

Payments likely to constitute SSSPs include any payments made under a settlement agreement, the value of employee benefits or allowances continuing beyond the exit date, write-offs of outstanding loans, special leave such as gardening leave, compensation in lieu of notice ('CILON'), and payments agreed as part of judicial or non-judicial mediation.

The key changes in the 2026 handbook

1. A clearer, numerical prospects-of-success threshold

The 2025 handbook stated that settlement might be justified where there was "a significant prospect of losing the case" and should not be offered where "a legal assessment suggests the trust is likely to be successful." This language was imprecise. The 2026 handbook now sets a specific numerical threshold: whether a payment is justified must be based on a legal assessment of the trust's chances of successfully defending the case at employment tribunal. If there is a greater than 50% prospect of losing the case, a settlement may be justified, especially if the costs of a defence are likely to be high. Where a legal assessment suggests the trust has at least a 50% chance of being successful, a settlement should not be offered.

This is a critical tightening. Trusts and their advisers can no longer rely on vague references to litigation risk - a formal legal assessment with a clear percentage probability is now the baseline requirement before any offer is made. As was previously the case, SSSPs can't be offered simply on a commercial basis, where doing so is cheaper than taking a disciplinary case or defending any attendant employment tribunal claim.

2. "Additionally, and exceptionally" - a new framing

The 2026 handbook introduces new language at paragraph 5.12, framing the SSSP regime as applying only in exceptional circumstances: "additionally, and exceptionally, if an academy trust is considering a staff severance payment above statutory or contractual entitlements," it must follow DfE's special severance payments guidance and HM Treasury's guidance on Public Sector Exit Payments: Use of Special Severance Payments. The word "exceptionally" is new and deliberate — SSSPs are not routine tools of people management. If your trust regularly makes SSSPs, you'll need to revise your practice before 1 October 2026.

3. New mandatory DfE prior approval triggers: NCR examples now explicitly named

This is the most significant practical change for HR and finance teams. The 2025 handbook required DfE prior approval where a payment was novel, contentious or repercussive ('NCR'), and pointed to HM Treasury's guidance for examples, but it named only one example explicitly (a confidentiality agreement). 

The 2026 handbook, at paragraph 5.13, now explicitly requires trusts to obtain prior DfE approval before making an SSSP where: an exit package of £100,000 or above includes a special severance payment; the employee earns over £174,000; or the payment is novel, contentious or repercussive. Section 3.4 of HM Treasury's guidance is expressly cited as containing examples of such NCR payments.

The explicit naming in the body of the handbook of the less than 50% prospects of success scenario as an NCR trigger is entirely new. Beyond that, trusts must be alert to the further NCR examples set out in paragraph 3.4 of HM Treasury's guidance, which is linked in the handbook.

These include cases that are likely to be contentious or attract attention, including those involving a senior member of staff. They also include a payment made to an employee at any grade who is dismissed or has their contract terminated outside of formal conduct, capability, retirement, redundancy or voluntary exit scheme procedures. This last point is particularly important in practice: any agreed exit reached without the conclusion of a formal internal process - precisely the scenario most commonly managed through a settlement agreement - is likely to be NCR, requiring prior DfE approval before any offer is made.

4. Confidentiality clauses: 'Always' NCR

In respect of special severance payments, confidentiality clauses are always novel, contentious or repercussive, and so must not be used unless the trust has obtained prior DfE approval. There are no exceptions.

5. Payments under £50,000: No safe harbour

Where an academy trust is considering an SSSP including a non-statutory or non-contractual element of £50,000 or more (gross, before income tax or other deductions), DfE's prior approval must be obtained before making any offer to staff. However, trusts should demonstrate value for money by applying the same scrutiny to a payment under £50,000 as to those over this limit and have a justified business case. The £50,000 threshold isn't a safe harbour: a payment below £50,000 that is NCR, for example, one involving an agreed exit outside a formal process, still requires prior DfE approval.

6. Mandatory record-keeping

Trusts must clearly record and retain evidence of the management and approval process in respect of any SSSP, including any legal advice of the likelihood of successfully defending the claim, the reasons for the decision, the supporting evidence, and how value for money was ensured. This is an entirely new requirement in the 2026 Handbook. Informal conversations or undocumented assessments will no longer be sufficient - a contemporaneous paper trail is now mandatory.

The position for further education colleges

Very similar provisions have been introduced in the Colleges Financial Handbook 2026, effective from 1 August 2026. The obligations imposed on further education colleges now closely mirror those described above, including the explicit NCR triggers, the prohibition on confidentiality clauses without DfE approval, and the emphasis on SSSPs being used only in exceptional circumstances. The direction of travel across all publicly funded education settings is consistent: DfE is aligning its rules with HM Treasury's wider public sector framework and tightening oversight of how public money is used on staff exits.

Why this matters - the consequences of getting it wrong

The accounting officer must take personal responsibility, which must not be delegated, for assuring the board that the trust complies with the funding agreement and handbook. The accounting officer must complete and sign a statement on regularity, propriety and compliance each year and submit it to DfE with the audited accounts. Any payment that doesn't comply with this guidance is a breach of the controls, which may result in sanctions on the organisation. Making a non-compliant SSSP is therefore not merely an institutional risk - it is a personal one for the accounting officer who signs off on it.

The practical message is clear: you must ensure a thorough and documented process of SSSP consideration is undertaken and that appropriate approvals are sought before any offers, whether oral or in writing, are made. Agreeing heads of terms first and seeking approval afterwards is not permissible.

Action points for trusts

Before any SSSP or settlement agreement is contemplated, trusts should:

• Obtain a formal written legal assessment of the prospects of defending any employment claim, expressed as a percentage.
• Where prospects of success for the trust’s defence are 50% or greater, treat the proposed settlement as NCR and seek DfE approval before making any offer - even an informal or verbal one.
• Assess whether any other NCR trigger applies: in particular, whether the exit is likely to attract attention or be contentious, and whether the exit is an agreed termination outside a formal conduct, capability or redundancy process.
• If a confidentiality clause is sought, obtain DfE approval first, without exception.
• Document the decision-making process, including legal advice, reasons and value for money assessment, and retain that documentation.
• Apply the same level of scrutiny to payments below £50,000 as to those above the threshold.
• Ensure trustees, accounting officers and HR leads are familiar with the new provisions before 1 October 2026.

This article is for general information only and does not constitute legal advice. If you have questions about how these rules apply to a specific situation, please contact your legal advisers.