Being made redundant with extra pay

outgoingzero

Hi

I'm in the process of being made redundant. My contract says I'm entitled to 3 months notice, which my employer has told me I will have to work.

They have said that in addition to minimum stat. redundancy payment, they will pay me an extra 3 months salary if they are happy with the training of other employees to do my duties I have been asked to provide.

I have asked if the extra 3 months salary payment (if made) will be subject to tax. I am aware you can be paid up to £30K when you leave tax free under some circumstances.

They have said this payment would count as PILON and so would be subject to tax. I don't really understand this as I'm working my 3 months notice, and the extra 3 months shouldn't therefore be PILON and taxable? It's not like my notice is 6 months.

Am I just wrong on this? I'd like to challenge this if I can as I'll be living on this money for a fair few months I should think when I lose my job.

diable

How come you are being made redundant and have to train others or is your job going and others have to be trained as they will share the responsibility?

When I was made redundant my PILON was not taxed.

Also what do they mean if they are happy with the training you have provided, what happens if they are not happy, what happens then? Is there an option for you to leave and then complete the training as a self employed trainer?

getmore4less

They may be offereing net pay, not gross which thye can do.

Remind them that if they are paying it as PILON then they will actualy have to pay the tax and NI(both).

If they pay it as compensation they save the employers NI and you save the tax(up to £30k total) and NI.


I am not sure so worth seekeing out opinion but if you can show you woked notice, get the termination with 3 moths in writing, and they do pay it taxed you may be able to claim it back.

outgoingzero

Just to clarify:

- Staff with other roles are taking on elements of my job (so they can make me redundant)
- They will pay the 3 months gross, but it will then get taxed costing me around £3000.
- The extra payment is on condition I make a sincere effort to ensure a proper handover - I'm doing this and making sure it's documented.

diable

Work the three months training the existing members of staff then ask for the redundancy payment and PILON after that.

outgoingzero

diable wrote: »

Work the three months training the existing members of staff then ask for the redundancy payment and PILON after that.

Hi there

This doesn't seem to help me, as I think PILON is normal subject to tax.

ceeforcat

Does your contract provide for PILON? Generally they do not. If not the employer will have breached your employment rights in your circumstances and the PILON is not taxable nor NICable. If it specifically mentions provisions for PILON the payment is treated as an emolument of your employment and both tax and NIC apply. I would be more concerned about your 'replacements'. Remember it is positions, not people that are made redundant.

Excerpt from HMRC below - note final paragraph.


Where contractual arrangements provide that a PILON is to be paid as an alternative to notice, the contract is terminated in accordance with its terms where there is summary dismissal. Compensation will be a matter of contractual entitlement rather than liquidated damages and the payment is chargeable under Section 19 ICTA 1988.
Some taxpayers have suggested that such a provision for a PILON merely quantifies the sum of damages payable following any failure to give due notice of termination. Employment law in this area indicates that, because the contract itself provides for the PILON, its character is not damages for breach of contract.
Employer and employee may agree at the time of terminating the employment that it is to be terminated without proper notice but on the making of a PILON. Provided that there was no existing understanding in respect of that payment which could be viewed as a contractual provision or amendment, its source lies only in the agreement to terminate the employment. It does not lie in any bargain struck between the parties governing the employment relationship and its termination. The payment is not an emolument from the employment and so it is properly taxed under Section 148 ICTA 1988.
Where contractual arrangements do not provide for a PILON and there is no other agreement of the sort mentioned in the previous paragraph, failure to give due notice is a breach of contract by the employer. A payment made for such a breach represents liquidated damages and is not an emolument from the employment within Section 19 ICTA 1988. As a payment in connection with the termination of the employment, it is chargeable under Section 148 ICTA 1988 subject to the exemptions and reliefs in Section 188 ICTA 1988.

outgoingzero

Yes - my contract does say they can pay me in leiu of notice.

That's fine - but I'm having to work my notice. Surely an extra payment at the end can't be PILON?

jimmo

If the taxman looks into this he is likely to find that you have been given the notice you are entitled to and paid normally for that work.
No matter what your employer calls it there is no way that the taxman will accept that the extra 3 months' payment is PILON.
However, it is extremely unlikely that he will accept that the extra 3 months' payment is a redundancy payment.
That is because the extra 3 months' payment is not compensation for you losing your job. It is a reward for doing something well.
It is either a bonus or, possibly, a payment for additional duties.
http://www.hmrc.gov.uk/manuals/eimanual/EIM00730.htm
Either way, I am afraid the payment will be subject to PAYE.

diable

outgoingzero wrote: »

Hi there

This doesn't seem to help me, as I think PILON is normal subject to tax.

I wasn't taxed on mine.............

outgoingzero

My understanding in that a redundancy payment of up to £30,000 isn't taxable.

Redundancy payments up to £30,000 in the course of working for any one company are normally free of tax. Anything above £30,000 is taxed at your highest rate.

I don't understand why my employer wants to give me extra money it doesn't contactually have to, whilst calling it PILON when I'm actualy working my notice.