Redundancy, PILON and Income Tax

sm27650

Hi All,

Have tried to find the answer but not had much luck.

I'm being made redundant this week (in consultation) after 2 years service and have been told I will be PILON, but I'm trying to work out the position HMRC takes when deducting TAX and NI...

I'm on a 3 month notice, so my PILON will be 3 months - how does HMRC calculate the TAX here?

Do they:

A) See it as a PILON and TAX you the same amount as they would do each month for your 3 month PILON

or

TAX is as a large single payment and as such, instead of months two and three being taxed at x at 20% and y at 40%, would it mean that months two and three are both taxed at 40% (if that makes sense)

Thanks in advance.

Perelandra

The months that the PILON refers to will not be relevant- the total amount of tax you owe is based on your taxable earnings for the full year, not your earnings in each month. The amount of tax deducated by your payroll department will probably be based on your taxable earnings year to date, on your P45. Ultimately, if more tax has been deducted than you owe by the end of the tax year, you can claim this back through a tax return. If too little has been deducted, there will be an outstanding sum to pay.

Does that answer your question?

Two other things to be aware of- check your contract for wording around whether your employer reserves the right to pay PILON of notice. This is important, since if the following two conditions are met:

1) There is no term that refers to PILON in the contract and
2) The company does not have a track record of paying PILON when redundancies are made

Then any PILON paid is considered to be a compensatory payment for breach of contract. Under these conditions, PILON is *NOT* taxable.

Furthermore, if there is no term refering to PILON in your contract then, should you so wish, you do not have to accept PILON and can insist on working out your notice or going on Garden Leave.

getmore4less

HMRC changed the rules on redundancy payments so it gets taxed as PAYE if paid be fore issueing a p45 so will almost certainly be overtaxed when paid.

Allthough you can get JSA immediatly consider doing a P50 and delay getting JSA or another job if significant.
http://www.hmrc.gov.uk/incometax/stop-work-refund.htm


more on PILON
http://www.hmrc.gov.uk/manuals/eimanual/EIM12975.htm

sm27650

Thanks for the advice so far.

I've just checked my contract and it has the following wording:

The company reserves the right to terminate your employment immediately by paying base salary in lieu of notice which you would have been entitled to redeive under this agreement during the notice period as ref to...and deduct sums equivilient to tax and national insurance from any such payment.

Taking this into consideration and your words, because the words PILON have been used, it will be subject to tax and NI deductions.

Thanks in advance.