Voluntary redundancy - struggling to understand PILON

grimsalve · 13 December 2019 at 12:14PM

My employer is currently offering voluntary redundancy (there's rumours of compulsory redundancies to follow which might be statutory only). This is the first time I've experienced a situation like this so I'm struggling to understand it all.

My settlement is £40k which sounded like a good deal but then I started reading about all these new tax rules and now I'm confused. Here's what I've found out so far...

Out of the £40k I think there will be a tax free amount of £30k - for simplicity, I'm only concentrating on the remainder to understand the tax situation...

the remaining part of the settlement (£10k) is then subject to tax and national insurance... I'm a high rate tax payer so would that reduce it to below £6k?

I'm on a 3 month notice contract. My employer wants this resolved as soon as possible (preferably within a month I think) so does this also mean I'll be hit with PILON tax too?

Would the PILON tax be taken from the remaining £6k? :huh: - how is PILON calculated? Would it be another 40% tax? Leaving maybe £3.5k?

If this is correct then it seems unfair that there's a double tax hit. Has anyone gone through a similar experience?

lulu650 · 13 December 2019 at 1:28PM

It's very straightforward and all on the GovUK website;

Employees who’ve been made redundant only pay tax on payments over £30,000. They do not pay any National Insurance.

Tax and National Insurance are deducted from other termination payments, for example payment in lieu of holiday or notice.

It's upsetting to be made redundant but you get more than statutory redundancy (max £15,750) and £30,000 is tax free. That's the way I looked at it for my own redundancy in any case.

getmore4less · 14 December 2019 at 7:23AM

There are 2 parts

Pay, you pay Tax&NI on that whatever the source.

PILON brings the pay you would have got forward, subject to timing this will be in the same tax year as if you had worked it so the tax will be the same, the NI should be a bit less as some will now get paid at 2% where is paid monthly it would have been 12%

Redundancy
upto £30k tax free, tax on the rest as if it was income, No NI

Does the £40K include the PILON payment if it does then you take that off first and treat it like pay.

sheslookinhot · 14 December 2019 at 11:04AM

If the OP, put the 10k taxable element of his redundancy pay in a SIPP, would he get the 40% tax relief ?

getmore4less · 14 December 2019 at 1:36PM

how is PILON calculated?

Should have added PILON is compensation for not working your notice.

It should be what you would(could) have got had you not been terminated early, not to be confused with garden leave where you are not terminated just don't have to work.

Typically* this is the pay you would have got had you worked your notice, some places also allow holiday to accrue and pay that as well.

* it can get a bit messy when there is variable pay and things like commission and bonuses to factor in.

Voluntary redundancy - struggling to understand PILON

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