Redundancy - Notice Period

altypete

Several people are currently being made redundant from where I work and it seems they are basically getting the state minimum they are entitled to.

My question here relates to the notice period, which I believed was paid as part of the redundancy free of statutory deductions, but it appears my colleagues will be paying tax on this element.

I was made redundant from my last job around 3 years ago and in this instance I was paid my notice period with no statutory deductions. The paperwork I have states "notice period is free of statutory deductions if paid in lieu of notice".

Should my colleagues now being made redundant at my present place of employment be getting their notice period payment untaxed? I obviously want them to get the best deal possible as it could be me next & I'll be getting the same.

Thanks in advance.

anamenottaken

Will they be working their notice period? If so it is taxed as normal.

If they working some but not all of the notice, then that which relates to the worked time will be taxed.

If they have been sent home on gardening leave but their employment is not yet terminated, they will pay tax as normal.

If they have been dismissed so that their employment has now ended, whether they are taxed will depend on their contracts, which may include the custom and practice of the employer as to whether they normally pay in lieu of notice (PILON).

If it is customary to pay for unworked notice, it will be taxed.

If it is not their practice to do so, then they may say it is compensation for not getting their notice - and therefore not taxable. Even if that is the case, they may still decide to play safe from their point of view and make the customary deductions for tax and NI. It would then be for the employees to argue with HMRC that they should get a tax refund.

altypete

anamenottaken wrote: »

Will they be working their notice period? If so it is taxed as normal.

If they working some but not all of the notice, then that which relates to the worked time will be taxed.

If they have been sent home on gardening leave but their employment is not yet terminated, they will pay tax as normal.

If they have been dismissed so that their employment has now ended, whether they are taxed will depend on their contracts, which may include the custom and practice of the employer as to whether they normally pay in lieu of notice (PILON).

If it is customary to pay for unworked notice, it will be taxed.

If it is not their practice to do so, then they may say it is compensation for not getting their notice - and therefore not taxable. Even if that is the case, they may still decide to play safe from their point of view and make the customary deductions for tax and NI. It would then be for the employees to argue with HMRC that they should get a tax refund.

Many thanks for your comprehensive response. It has helped clarify the situation for me.

It's not clear yet whether my colleagues will be required to work any or all of their notice period. I have however found the following paragraph in our employee handbook which states the following under the heading of "Payment in lieu of notice":-

"Where the Company provides employees with notice of termination of employment (other than for gross misconduct) or where employees provide the Company with notice of resignation, the Company may at its absolute discretion make a payment in lieu of the whole or part of the notice entitlement to employees."

How would this fit into the tax/no tax scenario as my interpretation of that statement is that it would be the exception rather than the rule for them to make a payment in lieu of notice.

anamenottaken

altypete wrote: »

"Where the Company provides employees with notice of termination of employment (other than for gross misconduct) or where employees provide the Company with notice of resignation, the Company may at its absolute discretion make a payment in lieu of the whole or part of the notice entitlement to employees."

How would this fit into the tax/no tax scenario as my interpretation of that statement is that it would be the exception rather than the rule for them to make a payment in lieu of notice.

I "think" that would count as being contractual even if it is at the employer's discretion. They are, in effect, saying that they retain the right to pay PILON. It is usually when written contracts are totally silent about PILON and it is also not the case that PILON is often paid when people are dismissed by the employer, that you could argue it was not contractual.

I would not read into it the fact that it is the exception, not the rule. It could be read as the opposite - that normally they pay PILON but won't be held to do so instead of getting the employee to work their notice.

mariefab

The following links suggest that, in the circumstances you describe, the PILON will be taxable.

http://www.hmrc.gov.uk/bulletins/tb24.htm#payment_in_lieu

http://www.steenandco.co.uk/payment-in-lieu-of-notice-_48/

altypete

Thanks guys.

I never realised at the time, but the contract in my previous employment must have been silent in terms of PILON.

You've really helped clear this up for me, thanks again.

zzzLazyDaisy

altypete wrote: »

Thanks guys.

I never realised at the time, but the contract in my previous employment must have been silent in terms of PILON.

Thanks to anamenottaken for the succinct summary.

To OP: Probably the majority of contracts are silent about PILON, but where the employer reserves the right to make a payment in lieu of notice and/or it is custom and practice to do so this becomes a term incorporated into the contract for tax purposes, and is taxable.