Any employment lawyers on here?
Discussion
edc said:
Only the company can tell you how much redundancy pay you will receive. PILON is generally taxable though.
My limited knowledge and research seems to suggest this is correct where there is a PILON clause in the contract.But if there is no clause and a 'loss of office' compensation payment is made (and a compromise agreement is entered into) then that payment can be included in the £30k tax free allowance.
If that is the case and the gross amount was the same in both situations, would that not benefit both parties, as neither would have to pay the relevant taxes and the employer wouldn't have to pay NI?
In other words, if the statutory redundancy pay + PILON (before tax) came to £30k, wouldn't it be better for everyone for a compromise agreement to be made which paid £30k (tax free) loss of office' compensation?
FurtiveFreddy said:
edc said:
Only the company can tell you how much redundancy pay you will receive. PILON is generally taxable though.
My limited knowledge and research seems to suggest this is correct where there is a PILON clause in the contract.But if there is no clause and a 'loss of office' compensation payment is made (and a compromise agreement is entered into) then that payment can be included in the £30k tax free allowance.
If that is the case and the gross amount was the same in both situations, would that not benefit both parties, as neither would have to pay the relevant taxes and the employer wouldn't have to pay NI?
In other words, if the statutory redundancy pay + PILON (before tax) came to £30k, wouldn't it be better for everyone for a compromise agreement to be made which paid £30k (tax free
) loss of office' compensation?
Whilst one can argue it might be in both parties interest to fudge things HMRC wouldn't be impressed, nor would the solicitor revewing the compromise agreement, and nor would the individual when they see the clause that makes them liable for any PAYE implications. The amount of NI you are talking about for an employer is small fry.
I'm not sure either party want to fudge anything when HMRC might be involved. She'd entitled to 12 weeks notice. We all know they won't make her work that, so it's about trying to get her the biggest payoff with the least tax implications.
It seems that if they payed her 12 weeks money and called it PILON, tax would need to be deducted but if they call it loss of office in a compromise agreement, it would be tax free up to £30k. Have I got that right?
One interesting aside is that one of her colleagues was recently made redundant. He reportedly received around £30k, didn't sign any compromise agreement and the company referred to that payment as "a redundancy payment of 6 month's salary which will be tax free".
If they made the same offer to my partner, could the HMRC claim that is PILON and chase her for tax?
It seems that if they payed her 12 weeks money and called it PILON, tax would need to be deducted but if they call it loss of office in a compromise agreement, it would be tax free up to £30k. Have I got that right?
One interesting aside is that one of her colleagues was recently made redundant. He reportedly received around £30k, didn't sign any compromise agreement and the company referred to that payment as "a redundancy payment of 6 month's salary which will be tax free".
If they made the same offer to my partner, could the HMRC claim that is PILON and chase her for tax?
You cannot pick and choose for convenience whether a payment is tax free or not. If the contract stipulates the company may terminate and pay in lieu of notice then PILON is a taxable payment. If the contract states 12 weeks notice but does not state the company can pay in lieu and she is not served any notice then in most circumstances the payment can be made tax free. The company can choose whatever calculation method it wants to pay over and above statutory redundancy pay.
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