PILON Query

NorthernG_2

Hi all

I know this has been done before but I would like some clarification for my personal situation on PILON

I am on a 3 month notice period. My company has confimed that if we are selected for redundancy then we will be terminated with immediate effect and paid in lieu of the 3 months notice period.

My contract does not have a clause in it for PILON. my contract only mentiones PILON if you are dismissed on the grounds of Gross Misconduct or disciplinary.

Due to all the above does this mean that my PILON should be tax free as it is not written in my contract?

Many thanks

Debt_Free_Chick

Almost certainly yes, provided the employer does not have an established practice of paying PILON with tax deducted.

The test is two fold - what's in the contract and what has the custom and practice been.

NorthernG_2

Debt_Free_Chick wrote: »

Almost certainly yes, provided the employer does not have an established practice of paying PILON with tax deducted.

The test is two fold - what's in the contract and what has the custom and practice been.

Wow, that was one speedy response!!!

The custom and practice is not something I am aware of as there have not been any redundancy's in the 2 years I have been at the company. The company also got bought out just as I started and have now an entirely different board and company name so I am assuming there is no practice here that they can adhere to

Debt_Free_Chick

I didn't the time of your post and my reply - LOL! I must have just stumbled on to your post at "the right time"

Sounds like you should be OK. If there's an issue, wait until they tell you and then post back. Or just ask them, now?

NorthernG_2

I asked them at my consulation meeting today and the HR Director said we would be taxed. I told her she was wrong, sent linsk to Direct Gov. etc but just wanted to clarify my position as she said that the legislation had recently changed.

This is from a company who had a new Business Development Manager start at the company 3 working days after the other 3 BDM's (me included) were put at risk.

The new guy is also at risk however this must be only borderline legal to do this when up to 3 out of the 4 of us are going to be made redundant so I am struggling to take anything they say as fact!

ceridwen

Logically - pay is still "pay" - even if its "in lieu of notice". I would think you would find therefore that its taxed. However - if you checked with HM Revenue and Customs then you would find out for sure whether it is or no.

NorthernG_2

ceridwen wrote: »

Logically - pay is still "pay" - even if its "in lieu of notice". I would think you would find therefore that its taxed. However - if you checked with HM Revenue and Customs then you would find out for sure whether it is or no.

It does say this quote on Direct Gov:

PILON is only taxable if it's been provided for in your contract or is customary. Otherwise, it is not taxable unless the PILON together with redundancy and other compensation adds up to more than £30,000, in which case the excess over £30,000 is taxable at the usual rate.

There is no clause for PILON in my contract so as per the above it should be tax free

Debt_Free_Chick

It's not that "the law has changed", more that HMRC have clarified and "got tough" with what has generally been the tax situation. There is "no change in the law" to point to - it's always been the case that where an employer has the contractual right to dismiss without notice by paying PILON, then that payment will be taxable. This because the Taxes Act considers such a payment to be payment of wages/salary.

Where there is no payment of wages/salary, then the lump sum paid by the company is in lieu of damages/compensation for loss of office and therefore taxed under a completely different part of the Taxes Act.

Can you copy the part that explains the Company's right to terminate your contract from your contract here?

Debt_Free_Chick

ceridwen wrote: »

Logically - pay is still "pay" - even if its "in lieu of notice". I would think you would find therefore that its taxed. However - if you checked with HM Revenue and Customs then you would find out for sure whether it is or no.

But pay in lieu of notice is not automatically pay - it might be a lump sum in lieu of damages.

NorthernG_2

[quote=Debt_Free_Chick;19799009

Can you copy the part that explains the Company's right to terminate your contract from your contract here?[/quote]

Here you go

20.0 Notice of termination
After successfully completing your probationary period if you wish to bring your employment to an end, you are required to give three months’ written notice to the Company. Should the Company need to terminate your employment, you are entitled to three months’ written notice.

In the event of gross misconduct or a serious breach of your terms and conditions of employment, the Company may terminate your employment without notice and without any payment in lieu of notice.

The Company reserves the right during a period of notice or any part thereof, to assign you to other reasonable duties as required by the Company or to place you on paid leave.

Debt_Free_Chick

Looks good to me - you should get three months pay, without any deduction

You could always send your HR manager the link to the bit on DirectGov that you found and tell her "I'm confused, as this part of DirectGov suggests that no tax should be deducted" and see what she says.