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Redundancy, PILON taxable or not?
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# 1
mrangry2006
Old 10-03-2008, 12:51 PM
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Default Redundancy, PILON taxable or not?

Being tax on my Payment In Lieu Of Notice (PILON) figure, my contract of employment does not mention PILON anywhere so I am assuming that it should be tax free. Am I right?

Telephone ACASS who advised me to speak to the tax office, spoke to the tax office they could only decide after payment. Who can I speak to relating to this matter?

Has anyone else had this problem?

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# 2
michaelvintner
Old 10-03-2008, 12:58 PM
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From what I can remember when I was made redundant payment in lieu of notice is taxable as it is just basically your wages for the required notice period that the company has to give you.

The amount you get for being made redundunt however is not taxable.
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# 3
zzzLazyDaisy
Old 10-03-2008, 1:14 PM
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A payment in lieu of notice is NOT taxable. This is because the notice entitlement in the contact is a right to be given X weeks/months notice (ie warning) of termination.

If the company terminate your employment without requiring you to work your notice, this is technically a breach of contract, and the lump sum payment in lieu of notice is compensation for the breach. There is no tax on such payments.

The only time you would pay tax on a PILON is where the contract of employment specifically states that the employer reserves the right to make a PILON instead of requiring you to work your notice. In that case the payment is classed as an emolument of service and is taxable.

Other payments that arise under the terms of the contract such as outstanding wages and holiday pay are also taxable.
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# 4
dori2o
Old 10-03-2008, 9:01 PM
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When is your payment due to be paid?

It may be better letting the tax be paid and then writing to HMRC, with a copy of the payslip or payment notice, and a copy of your employment contract.

That way an inspector can make the decision as to the correct way to treat the payment, and if tax has incorrectly been deducted can arrange for, or advise how to claim a, repayment.
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# 5
zzzLazyDaisy
Old 10-03-2008, 9:35 PM
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Ultimately there is absolutely nothing you can do until you receive your final leaving payment. Your employer will deduct tax or not in accordance with the advice they have received.

If your company has a HR department you could ask them how the payment will be dealt with. Apart from that you will just have to wait and see what happens.
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# 6
mrangry2006
Old 11-03-2008, 7:02 AM
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[quote=jimmo;9256381]Its really not that simple.

PILON is taxable in full if you have a contractual right to receive it or if the payment is automatic or customary.

It does not mention PILON anywhere in my contract of employment so I have no contractual right to receive it and who defines if the payment is automatic or customary?

Does that mean that everyone pays tax on PILON when being made redundant without a proper notice period because it is customary and automatic to receive payment in lieu of notice?

Confused:confused:
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# 7
BoGoF
Old 11-03-2008, 6:59 PM
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What Jimmo means, I think, is that if your contract states that if your employer terminates your contract they will have to give you x weeks notice. If your employer terminates your contract and you do not have to work your notice period but pays you the same x weeks wages as a PILON then it is taxable - it is money that you would have earned had your notice been properly given.
Even if no notice period is specified in your contract, if it is customary for your employer to pay PILON then again it is taxable.
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# 8
amf
Old 11-03-2008, 8:46 PM
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As Jimmo says, it is not that simple.If every (former) employee of your company has received PILON then HMRC might well form the view that PILON is expected or implicit and thus taxable.

Assuming that there is not such a precedent HMRC may well request a copy of your contract of service and all documents pertaining to your severance to enable them to decide the taxability or otherwise of all payments. If you have overpaid tax in the meantime it will be refunded.
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# 9
Bean Counter
Old 12-03-2008, 8:27 AM
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Quote:
Originally Posted by BoGoF View Post
What Jimmo means, I think, is that if your contract states that if your employer terminates your contract they will have to give you x weeks notice. If your employer terminates your contract and you do not have to work your notice period but pays you the same x weeks wages as a PILON then it is taxable - it is money that you would have earned had your notice been properly given.
Even if no notice period is specified in your contract, if it is customary for your employer to pay PILON then again it is taxable.
That is my understanding of the situation as well.

Even more as I understand it, even if you try to dress it up as compensation for loss of office but the total value comes to around the same figures that you would have earned if the notice had been worked, HMRC would treat that as effectively PILON and tax it.
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# 10
mrangry2006
Old 12-03-2008, 7:29 PM
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Default thanks everyone

Thanks for everyone's replies; the whole company I have worked for six years is being wound up at once by our parent company with site closure. As there are only about twenty of us they have give us the minimum consultation period of thirty days with only the statutory payment in lieu of notice and redundancy payments.

I put the question of PILON through one of our elected reps on Monday and got an answer today that the companies’ position remains unchanged with no justification. So it looks like I will have to contact the tax office after payment and hope for the best.

Once again thanks everyone, better start looking for a new job.
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