Pilon

robin61

I've been trying to get my head around these new PILON rules which have been introduced from 6 April. Can anyone tell me if I have this right. I will keep the figures simple.

If a redundancy payment is spread over 3 different tax years. I've been told by my company that £30k in excess of the PILON is still tax free.

Deemed PILON £20k
Redundancy payment of £100k

Amounts to be paid
Year one - £40k
Year two - £30k
Year three -£30k

Tax payable
Year One - £20k attracts both tax and NI (PILON) and £20k free of tax and NI
Year two - £10k tax and NI free (balance of 30k tax free) and 20k tax only
Year three - £30k will attract tax only.

Can anyone tell me if I have understood this correctly please.

Thanks

jimmo

You've got the basic principles right (Tax and NIC on PILON, Tax only on other redundancy payments). The rest is purely down to how each payment is identified.
For tax and NIC purposes the income is chargeable when it is "received"
"Received" means paid to you or, if earlier, the date you became entitled to receive it.
https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim42260

I have to say that in all my years as a taxman I never saw a redundancy payment spread over 3 years. I don't doubt that it can be done. I've just never seen it and whilst definitely not an expert in employment law my understanding is that Statutory Redundancy Pay is payable on the first day of redundancy (the day after the last day of service). Entitlement to anything over and above Statutory Redundancy Pay will be dictated by your employer's redundancy policy or the compromise agreement between you.
That would mean that your first payment of £40k must include your entitlement to Statutory Redundancy Pay.
Subject to that I reckon you've got it right.

robin61

Thanks Jimmo. Appreciate your help. It's actually a voluntary paid leaver scheme. It was very simple up until this year. £30k tax free and anything in excess taxable as and when you receive it at your marginal rate and no NI. This new PILON has complicated it somewhat.
So now for example anyone who gets under £30k isn't going to get it tax free anymore due to the PILON.

SuperHan

The changes only come into force on 6 April 2019, so you have another tax year.

(They snuck the push back through without much announcement, but see following link:
https://www.gov.uk/government/publications/income-tax-and-national-insurance-contributions-treatment-of-termination-payments)

[Deleted User]

Just to be clear - is the entitlement £100k redundancy PLUS PILON? If it is, £20k is not reflected in the figures.

getmore4less

I thought the only thing that changes was PILON could no longer be paid tax/NI free.

That was the case anyway for most people.


Don't mix the payments there is pay and redundancy.
The tax position on the redundancy for the employee has not changed.
If previously the PILON could have been paid tax free then that is now taxable.

I see employers now get hit for NI on the bit over £30k.

If the employer/employee plan this properly and give notice early enough they can just pay a bigger enhanced redundancy and save the employee a bit of NI by not having a PILON element in the settlement.

robin61

[Deleted User] wrote:

Just to be clear - is the entitlement £100k redundancy PLUS PILON? If it is, £20k is not reflected in the figures.

No £100k total

robin61

getmore4less wrote: »

I thought the only thing that changes was PILON could no longer be paid tax/NI free.

That was the case anyway for most people.


Don't mix the payments there is pay and redundancy.
The tax position on the redundancy for the employee has not changed.
If previously the PILON could have been paid tax free then that is now taxable.

I see employers now get hit for NI on the bit over £30k.

If the employer/employee plan this properly and give notice early enough they can just pay a bigger enhanced redundancy and save the employee a bit of NI by not having a PILON element in the settlement.

These things tend to happen quickly in my company. Decision by 13 July and go by 31July. These are not my exact figures just used these as a simple example.

ChuckMountain

robin61 wrote: »

Thanks Jimmo. Appreciate your help. It's actually a voluntary paid leaver scheme. It was very simple up until this year. £30k tax free and anything in excess taxable as and when you receive it at your marginal rate and no NI. This new PILON has complicated it somewhat.
So now for example anyone who gets under £30k isn't going to get it tax free anymore due to the PILON.

As getmore4less states you have two separate payments redundancy whether compulsory or voluntary as in your case and then PILON on top.

The first 30k of the redundancy (compulsory or voluntary) assuming it is an ex-gratia payment will be tax free and the whole lot will be NI free.

PILON now will be taxed and NI regardless of whether PILON was stated in your contract or not.

Is the company actually stating they will pay you over 3 years ? Or are you asking them for it? It seems quite a strange arrangement ?

getmore4less

Can save a lot of tax spreading over a few years especially for those moving onto lower income post redundancy.

ChuckMountain

getmore4less wrote: »

Can save a lot of tax spreading over a few years especially for those moving onto lower income post redundancy.

Yes completely agree it could give a lot of tax savings depending on the amount involved and whether they work or not etc.

It was more whether it was a company initiated scheme i.e. they were making the payments rather than the OP requesting the payment split. The latter would not be allowed from guidance out there. The former might but HMRC might take an interest.