Can I use a without prejudice letter as evidence?

Usually not, if it was a genuine attempt to settle an existing dispute. It can be used where there was no dispute, or where the behaviour amounted to unambiguous impropriety.

Do I have to reply without prejudice?

No, but replying on the same basis keeps the exchange out of evidence. Keep open correspondence about the process separate from settlement correspondence.

Is a without prejudice offer binding?

Not until terms are agreed. In the employment tribunal a settlement binds you through a COT3 agreed with Acas or a statutory settlement agreement.

What is the difference from a protected conversation?

Without prejudice needs an existing dispute. A protected conversation under section 111A does not, but it only covers ordinary unfair dismissal.

What does without prejudice mean?

Without prejudice keeps a genuine attempt to settle an existing dispute out of evidence. Section 111A protected conversations are a separate rule covering ordinary unfair dismissal only.