PILON and 40% tax

areed78

I'm trying to understand what tax I will pay on my 3 month PILON payment. Example below, figures are just a guide.

If you are a 40% tax payer so a percentage of your Monthly salary is paid at 40% - What happens when you get paid PILON. For 3 months will anything above the threshold attract a 40% tax banding , if it was paid monthly only a smaller percentage would attract it.

Example for this would be anything over £2750 attracts 40%. So for easy maths SALARY month 1 = £3000, month 2 = £3000, month 3 = £3000, so each month you would pay 40% on £250 = £100. (£300 total) .
Or is it calculated as 3*£3000 = £9000 > (£9000-£2750 )*40% = £2500 tax.


Hope this makes sense - just wondering which one.

InsertWittyName

See this question a couple of posts down: https://forums.moneysavingexpert.com/discussion/4583917

areed78

Not sure if PILON is treat differently as if I worked my notice I would pay different tax.

I appreciate over the year it will even out - however probably could do with the overpayment now instead of a rebate next April.

mcfisco

I didn't think PILON was taxable unless it was contractual ?

Does your contract say that you will be given 3 months PILON?
Or 3 months notice?
If the latter, I don't think you'll be taxed on it

areed78

It's in my contract about notice, but not lieu of notice, Lieu of notice is mention in all of our Redundancy documents state it's discretionary and that it will incur Tax and NI.

mcfisco

Maybe I'm mistaken then, I'm trying to recall details of what I would have got last year had I been on the list to go.

Look at this post
https://forums.moneysavingexpert.com/discussion/790039

areed78

thanks - if it is taxable can any one confirm how it is calculated ?

mcfisco

I would have thought that if it was taxed it would be done as if you'd been paid that much on that day rather than extrapolated.

xylophone

http://www.personneltoday.com/articles/11/09/2012/58801/legal-qampa-when-can-payments-in-lieu-of-notice-be-paid-tax.htm
http://www.hmrc.gov.uk/manuals/eimanual/EIM12976.htm

Credit-Crunched

PILON is treated as any other income, it is taxable via PAYE. Redundancy payments below £30,000 is tax free.

Hmrc depending on your preceding salary may tax you at 40% on the PILON, alternatively they may tax at 20% and see how your annual salary works out. If you underpay, they will adjust your tax code for the next year.

areed78

Thanks - If I overpay will I have to wait until April 14 - to reclaim a tax rebate ?