3 months Notice Taxable?

adamski911

Hi,
My girlfriend has just been made redundant just before she was due back off maternity leave.
The company has agreed to pay her 3 months notice and her redundancy in advance.
They have said the redundancy is tax free but she will be taxed on the 3 months pay.
I have spoken to a few people and they seem to think that she should not be taxed on the 3 months either as it relates to the redundancy?
Does anyone have any experience of this?

Pete111

It has nothing to do with the reason for dismissal and is highly likely to be taxable I'm afraid.

Your GF needs to check her contract. If it has a payment in leiu of notice clause then it's automatically taxable as this is a contractual payment and HMRC will want their share.

If the contract has no PILON clause then it is possible it may not be taxable but the company may have an established pattern of making such payments in leiu (despite no contractual arrangements having been made) and as such, the HMRC will consider that a policy of making PILON payments has been established - ergo, the company should also deduct tax at source.

The only chance she has of arguing against this is that a) there is no PILON clause in her contract and b) the company has rarely (if ever) paid notice in leiu rather than allowing employees to work their notice.

Either way, if the company is minded to deduct tax at source in relation to notice, they probably have a reason to think HMRC will consider it taxable and are within their rights to do so as it is far easier for HMRC to reclaim money that is owed from a firm than an individual.

P

dazza.mk

Agreed with above, it will only be tax free if the company do not make a habit of paying PILON (contractually or otherwise)

Sunshine12

I wasnt on maternity but when made redundant my salary was paid under heading of "compensation for loss of earnings" so that it wasnt taxed.

Pete111

Sunshine12 wrote: »

I wasnt on maternity but when made redundant my salary was paid under heading of "compensation for loss of earnings" so that it wasnt taxed.

Which sounds a teeny weeny bit like tax evasion if it relates to your notice.....