Garden Leave or PILON - tax implications

DBFR
DBFR Posts: 5 Forumite
in Redundancy & redundancy planning
Hi, I'm new here so apologize if this has been covered before. I'm likely to be made redundant and both Garden Leave and payment in lieu of notice are being discussed - my notice period is 3 months. Obviously if i accept PILON I would lose any annual leave that i would have normally accrued and will need to make sure i'm compensated for that, but my concern is about the single payment vs 3 individual monthly payments and the impact that will have in terms of tax. I'm going to pay more tax (i think) if paid in lieu, than I would if taking Garden Leave, because the tax free allowance will only be applied once - is that correct and if so how do i calculate what the difference in net pay would be. Thanks in advance for your help
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  • System
    System Posts: 178,093 Community Admin
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    DBFR wrote: »
    my concern is about the single payment vs 3 individual monthly payments and the impact that will have in terms of tax.

    A single payment or 3 separate payments will normally impact your final tax bill in the same way. Your income tax liability, as far as pay is concerned, is calculated on your Total Pay in any tax year. That said, if you take up employment immediately then your income in year will be greater than it might have been had you not left your previous employer. This might have tax implications if, say, your total income put you into the 40% tax bracket.
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Name Dropper First Anniversary First Post I've helped Parliament
    Obviously if i accept PILON I would lose any annual leave that i would have normally accrued and will need to make sure i'm compensated for that,

    You don't accrue annual leave past the termination date if you take PILON.

    It is always possible for the employer to decide that annual leave accrued during notice must be taken there for there is nothing to compensate.

    Three payments or one the tax works out the same if in the same tax year, NI can be more or less depending on the amounts as there are 0% 12% and 2% bands to consider.
  • DBFR
    DBFR Posts: 5 Forumite
    edited 14 June 2018 at 2:33PM
    Thank you Hengus and getmore4less - your comments about the tax make sense - no difference unless I took PILON and then started a new job immediately rather than at the end of the original notice period.

    Regarding the annual leave, I was really comparing Garden Leave with PILON - if I was on Garden Leave for my notice period I would still accrue annual leave, but as you say, I wouldn't if I took PILON and the employer could ask me to take it anyway. If I was forced to take PILON and if they didn't ask me to take the leave I would just make sure they compensate me for that.

    Thanks to you both
  • marlot
    marlot Posts: 4,934 Forumite
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    PILON used to be tax free, but I understand its now taxed?
  • getmore4less
    getmore4less Posts: 46,882 Forumite
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    edited 16 June 2018 at 11:59AM
    DBFR wrote: »
    Thank you Hengus and getmore4less - your comments about the tax make sense - no difference unless I took PILON and then started a new job immediately rather than at the end of the original notice period.

    Regarding the annual leave, I was really comparing Garden Leave with PILON - if I was on Garden Leave for my notice period I would still accrue annual leave, but as you say, I wouldn't if I took PILON and the employer could ask me to take it anyway. If I was forced to take PILON and if they didn't ask me to take the leave I would just make sure they compensate me for that.

    Thanks to you both

    Many employers don't know they don't have to pay extra for the holiday that could accrue during PILON period.

    The point is they don't have to ask you to take it if they are using PILON as there is no period you could take it, they just don't have to pay any extra compensation because they could have asked you to take it had you worked.

    the holiday accrued and not take up to termination does need to be paid

    During GL they need to make sure that holiday is accounted for as part of the GL T&C.
  • sangie595
    sangie595 Posts: 6,092 Forumite
    In the right circumstances, PILON may be tax free. Gardening leave never is because your are still in employment. Have you looked at whether PILON can be paid tax free?
  • DBFR
    DBFR Posts: 5 Forumite
    Thanks. The following was shared by a friend of a friend working in HR and this seems to indicate that PILON isn't tax free brodies dot com fwd slash blog fwd slash employment fwd slash how-should-payments-in-lieu-of-notice-be-taxed-from-april-2018 (excuse the odd url - i'm not allowed to share links at the moment)
  • marlot
    marlot Posts: 4,934 Forumite
    Name Dropper First Anniversary First Post
    DBFR wrote: »
    Thanks. The following was shared by a friend of a friend working in HR and this seems to indicate that PILON isn't tax free brodies dot com fwd slash blog fwd slash employment fwd slash how-should-payments-in-lieu-of-notice-be-taxed-from-april-2018 (excuse the odd url - i'm not allowed to share links at the moment)
    That fits with what I was told.


    Here's the link http://www.brodies.com/blog/employment/how-should-payments-in-lieu-of-notice-be-taxed-from-april-2018/
  • TELLIT01
    TELLIT01 Posts: 16,469 Forumite
    First Anniversary First Post Name Dropper PPI Party Pooper
    The only situation I can think of in which more tax may be payable on a single PILON payment than on 3 months garden leave, is if the 3 months garden leave bridged 2 tax years.
  • ChuckMountain
    ChuckMountain Posts: 194 Forumite
    First Anniversary First Post Combo Breaker
    marlot wrote: »
    PILON used to be tax free, but I understand its now taxed?

    It depended on whether if you had a term in your contract for PILON. If you did it was taxable, if not then you could get a tax free payment.

    The change in the rules however means it all is taxable regardless.
    getmore4less wrote: »
    Three payments or one the tax works out the same if in the same tax year, NI can be more or less depending on the amounts as there are 0% 12% and 2% bands to consider.

    Unless it is over over a tax year, it is the NI that might well have a bigger impact on your take home pay. It all depends on what your normal pay and redundancy pay is.

    If you are say normally a higher rate tax payer then since NI is capped monthly or weekly generally unlike tax, if you got all money in one payment you would potentially save 10% (12%-2%) on each months additional gardening leave in NI.

    That can make quite a difference in some cases.

    The other thing with gardening leave is if you were near a work anniversary, they would have to pay an additional years service.
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