taxation of PILON by I.R. + "accepted practise"

greenflamingo_2

Hi All
I have challenged the deduction of tax and NI from my 13 weeks redundancy notice period. Basically we were told to finish immediately and not given the option of working the notice. There is no mention of PILON in my contract of employment (as it is 20 years old). When I wrote to the Inland Revenue reclaiming the income tax I was told:

"In some circumstances payments in lieu of notice made without legal obligation can be chargeable as earnings under Section 62 Income Tax (Earnings and Pensions) Act 2003 if it is customary to make it.

*** have advised that although they do not have a written company policy on termination payments, they have made payments in respect of pay in lieu of notice for many years, and it has now become an established and accepted practise".

I know *** have been deducting income tax for approx 2 - 3 years and finishing people immediately without the option of working notice.

Does there have to be a certain number of years before deducting tax becomes an "established and accepted practise" and an employee hasnt a chance in hell of reclaiming it?

Spirit_2

The key phrase here is "without contractual obligation". If you are entitled to contractual notice then any pay you receive for that notice period - whether you work it or not - will be subject to tax and NI.

This reads as if you have a contractual notice of 3 months, can you check that? If it turns out you should only have 4 weeks notice then you may have 'non contractual' payment for anything above it.

LittleVoice

Regarding an established practice, I think the Inland Revenue would probably look not only at the length of time during which PILON has been customary but also the number of employees for which this has happened.

I do not believe a right to contractual notice makes the difference. They are not paying notice, they are compensating for breaking the contract they have to give it.

londondulwich

HMRC's discussion on how, in the absence of a contractual clause, PILON can become a custom, and how they go about deciding whether the nature of the customary payment is for damages or PILON can be found here:

http://www.hmrc.gov.uk/manuals/eimanual/EIM12977.htm

Note that the employer labelling the payment as damages is not the end of the matter. HMRC will still examine the nature and circumstances of the payment.

Edit: Be careful what you wish for. If you successfully argue that the payment is damages and you get get a job within the notice period, the employer (receivers) could always demand you repay the money that corresponds to the time you worked. Not likely, but a possibility.

Damages carry the burden of mitigation. Pay in Lieu of notice is a debt and no mitigation is necessary.

hula-hoops

Thank you for raising this. I am currently in the process of claiming back tax and NI on my PILON amount.

Likewise my contract stated nothing about PILON - just that my notice period was x weeks (a sliding scale based on length of service).

100 of us were made redundant on the same day and were not given the option to work our notice period. We had 10 minutes from being handed the notification of redundancy to clear our desks and leave the building.

Please keep us updated!

brewerdave

Were you paid the money "in lieu of notice" up front ?
I was told to leave the same day (in fact within 10 minutes!)that I was made redundant BUT the Company made it clear that they could exercise their right to recall me at any time during my 3 month notice period; they also paid me on the normal day during the 3 months and didn't pay my redundancy sum until the end of the notice period.