Redundancy: Pay in lieu of notice (PILON) tax?

[aclivity]

I think I need a little advice as what I am hearing from the highly trained HR team is not really answering my question.

I am under consultation regarding redundancy at the moment, I'm not fed up about it as I had already decided to leave the company, it's just changed my schedule a bit. This question is really one about paying tax on a PILON amount.

We have been informed that if your contract states that "you may be paid in lieu of notice" then any PILON payment is subject to tax & NI, but if your contract does NOT state this, then PILON is not taxed (unless it takes you over the £30k tax free allowance for redundancy). The problem is that my contract was issued some years ago and there have been a number of changes since then - not least the name of the company changing, and harmonised terms & conditions being applied.

So, I started working for the company, lets call it VisionEast, 7 years ago, and I had a 3 month notice period clause in my contract which said that the company may choose to pay in lieu of notice.

In 2008, the company merged and changed from VisionEast to DeFloweredStuff, and issued harmonised terms and conditions in a letter. These harmonised terms for notice periods were as follows:

Harmonised Terms and Conditions Letter said:

Contractual Notice period - Employee
The period of notice you are required to give in order to terminate your contract of employment will remain at 3 months as set out in your Previous Contract.

Contractual Notice period - Company
The Company notice period required to be given to you in order to terminate your contract of employment will remain 3 months as set out in your Previous Contract.

Ok, at this point I accept that my previous contract mentioned that the company may choose to pay me instead of keeping me to serve my notice.

Roll forward to 2010, when a new round of terms and conditions were rolled out, amongst other things my perk car allowance was rolled up into my salary, and all notice periods were reduced to one month. I received an emailed PDF letter as follows:

Covering email on changes to TandCs said:

<snip>
It's important that you keep a copy of this email and attachment because it forms part of your terms and conditions of employment. Aside from the items listed in the document, the remaining terms of your employment remain unaffected by this change.
<snip>

PDF Letter attached to email said:

From 1 January 2011, 1 month notice of termination of employment must be given by either side. Following five years continuous service, if notice is given by the Company one additional week's notice per year of completed service, up to a maximum of twelve weeks.

There is nothing else in that email or the PDF letter included in it that says anything about PILON.

As a part of the consultation over the changes to T&Cs, the company agreed to transition some of the changes over the course of a year, so for example the bonus was going from 15% to 10%, this was to take effect for bonuses paid in 2012, bonus earned in 2010 and paid in 2011 would have the existing conditions applied, also for things like healthcare, the 2010 family cover would remain until the end of 2011 for all existing members, but new members would only get the employee cover. One of the transition arrangements was over the notice periods moving from 3 to 1 months; the company issued a statement as follows:

Transition Arrangements Document said:

<snip>
It was agreed that current notice periods would be protected for anyone placed at risk of redundancy on or before 31 December 2011.

Now then, because that document specifically mentions "periods" rather than "conditions", I believe it is only in reference to the time that notice should be served, however the highly trained operatives in employee services and HR are claiming that it means all existing conditions are in place, and thus the entire amount should be taxable.

This has become quite a sticking point for the current consultation, can anyone advise based on the sanitised information I have posted here, or am I better talking to an actual legal / tax person?

Thanks in anticipation

[Cmof]

Without access to the full documents, it's very hard to interpret your account. My experience in these matters suggests that the contractual ability of your employer to pay you PILON has not changed, and therefore such sum will be taxable.

[edc]

Notice pay is always taxable.

[davepoth]

Ask for a compromise agreement, it's tax free.

[edc]

davepoth said:

Ask for a compromise agreement, it's tax free.

For the first £30k only which is exactly the same as a redundancy payment. PILON Is still subject to deductions either way.

[Cmof]

edc said:

Notice pay is always taxable.

It is not if the contract does not allow for it. This changes it from a contractual entitlement (taxable) to damages (non-taxable) for breach of contract.

[edc]

Cmof said:

It is not if the contract does not allow for it. This changes it from a contractual entitlement (taxable) to damages (non-taxable) for breach of contract.

If the contract does not specify PILON then there is no PILON payment to be made. Notice is either worked or one goes on garden leave. If it is a breach then using the term PILON is a moot point. Of course one can agree to vary the contract and have a PILON payment but it would be subject to deductions.

[Cmof]

edc said:

If the contract does not specify PILON then there is no PILON payment to be made. Notice is either worked or one goes on garden leave. If it is a breach then using the term PILON is a moot point. Of course one can agree to vary the contract and have a PILON payment but it would be subject to deductions.

Disagree. 'Notice is either worked or one goes on garden leave'.

An employer can terminate a contract with immediate effect without giving due notice. The employer then pays money in lieu equivalent to the notice period - this is damages, and not taxable.