PILON versus compensation

Welly123

Hi,
Hope somebody can help with this: Nearly 3 years ago I had a major heart attack and a "relapse" in September last year after my working hours and stress levels picked-up (yes, I failed to learn the necessary lessons). Since then I have had to reduce stress, working hours etc. (I finally learned the lesson). Now my company is making redundancies and I have volunteered for redundancy to avoid the inevitable stress, and to benefit from a slightly better package. I have asked to leave "soon" rather than work notice and the company have responded by effectively zeroing my PILON and upping the "voluntary" compensation by a similar amount.

My primary question is simply, am I liable to pay Tax and NI on this compensation (up to £30k, obviously, above will pay Tax/NI)?
Secondary question, is there a "body" that I can check with to get a definitive answer?

Thank in advance for any advice?

Regards

Welly

fortythree

Hi no expert but PILON is definitely taxed. A voluntary sum is more ambiguous. If its a decent amount it may be worth getting a lawyers advice as the wording you receive can make a difference. You can gt some simple advice for £200-£300.

Good luck

Scorpio33

PILON is pay for working, so is taxed.

ANY redundancy payment is tax free up to £30k, so if it is now redundancy (and not PILON), then it would be tax free up to £30k.

Edit: source here https://www.gov.uk/redundant-your-rights/redundancy-pay

anamenottaken

Scorpio33 wrote: »

PILON is pay for working, so is taxed.

ANY redundancy payment is tax free up to £30k, so if it is now redundancy (and not PILON), then it would be tax free up to £30k.

Edit: source here https://www.gov.uk/redundant-your-rights/redundancy-pay

Actually PILON (Pay In Lieu Of Notice) is pay for not working in that less than the required notice is given. It is however taxable unless it can be proved that it was neither a contractual right nor the employer's custom. Most employers will be cautious and tax it and thus avoid problems with HMRC and their having to pay more.

Teazel

Whether it would be considered taxable depends on whether you have a PILON clause in your contract or your company has a practice of PILON. The clause is usually in the termination of employment clause but best check everywhere in the contract. It usually says something along the lines of 'we reserve the right to pay you in lieu of notice'. You'd have to ask HR about any company practice.

Not sure whether this is being done via a compromise agreement but when I've used compromise agreements in the past, you can group the PILON and redundancy pay together into a compensation payment (if you don't have a PILON clause in your contract/ company practice of paying). It would then be tax free below £30K.

If you've got pro rata annual leave that you haven't taken by the date of your leaving this is paid but is taxable whatever.

You can try ACAS for independent advice or if you are having a compromise agreement you have to take legal advice (and the company you work for usually pays a sum towards this).

Hope this helps.