Payment in Lieu of notice.

[J4CKO]

Hi, anyone clear on whether payment in lieu of notice should, or not be taxed, I have my contract to hand and there is no express term that deals with it, all I can find is

"The company may, at its absolute discretion, require you not to attend your place of work for the duration of your notice period, and at its discretion, provide you with alternative duties of a similar nature and relive you of some or all of your contractual duties during that period"

So, gardening leave, but they dont cover letting you go and paying you up, which means to a point that is, technically, a breach of contract to do so,

Found this link,

http://www.xperthr.co.uk/faq/if-an-employer-pays-a...

And based on that, potentially I shouldnt pay tax on that payment, need to be careful as dont want three months gardening leave as hopefully should have a new job to go to.


In the past, my company has paid in lieu of notice but we were taken over so I have no precedent or knowledg eof their practice, so I cannot comment on whether it is implied or not.

Basically, want to get my lieu pay without tax, how can I do that ?

[55palfers]

It's pay - you'll be taxed.

[cbmotorsport]

Only redundancy pay is tax free up to a max of £30k.

[Marcellus]

IANAL but as I understand it;
- if they are paying it to you as Pay in lieu in line with your employment contract then it's taxed.
- if they are paying it to you to make you redundant, effectively "paying you off" and asking you to sign some form of agreement other than your employment contract it's not (subject to £30k max)

[davek_964]

Marcellus said:

IANAL but as I understand it;
- if they are paying it to you as Pay in lieu in line with your employment contract then it's taxed.
- if they are paying it to you to make you redundant, effectively "paying you off" and asking you to sign some form of agreement other than your employment contract it's not (subject to £30k max)

I don't think so.

Your settlement agreement isn't taxed (up to £30k). As others have said, the PIL is something else - it is normal pay and is taxed.

[Marcellus]

davek_964 said:

Marcellus said:

IANAL but as I understand it;
- if they are paying it to you as Pay in lieu in line with your employment contract then it's taxed.
- if they are paying it to you to make you redundant, effectively "paying you off" and asking you to sign some form of agreement other than your employment contract it's not (subject to £30k max)

I don't think so.

Your settlement agreement isn't taked (up to £30k). As others have said, the PIL is something else - it is normal pay and is taxed.

isn't that what I said?

PIL taxed, redundancy payment not taxed!

[J4CKO]

And this is the issue, nobody seems to know definitively, redundancy is statutory, its only the PILON that makes it a decent amount, it will however be less that 30k, so what is the point of them taxing it, call it redundancy, call it Marjorie, as long as I am happy and sign something to that effect I get another ffive grand I would otherwise pay in tax or NI.

No penalty to the company as far as I can tell ?

[parabolica]

Marcellus said:

davek_964 said:

Marcellus said:

IANAL but as I understand it;
- if they are paying it to you as Pay in lieu in line with your employment contract then it's taxed.
- if they are paying it to you to make you redundant, effectively "paying you off" and asking you to sign some form of agreement other than your employment contract it's not (subject to £30k max)

I don't think so.

Your settlement agreement isn't taked (up to £30k). As others have said, the PIL is something else - it is normal pay and is taxed.

isn't that what I said?

PIL taxed, redundancy payment not taxed!

Your second point suggested that if the PILON was part of a redundancy package then it wouldn't be taxed - this isn't correct. Only redundancy pay (statutory + any company-enhanced if they offer it) can be subject to the tax-free payment up to £30k. PILON, accured vacation and loss of benefits should be taxed as normal.

I have heard of some companies working around this and offering any payment in relation to redundancy as tax-free up to the 30k, but I'm not sure how they justified it legally.

[Countdown]

J4CKO said:

And this is the issue, nobody seems to know definitively, redundancy is statutory, its only the PILON that makes it a decent amount, it will however be less that 30k, so what is the point of them taxing it, call it redundancy, call it Marjorie, as long as I am happy and sign something to that effect I get another ffive grand I would otherwise pay in tax or NI.

No penalty to the company as far as I can tell ?

Company would get told off by HMRC if it paid something as "redundancy" unless it was a genuine redundancy.

For example - say you've handed your notice in and you're leaving to move to pastures new. Instead of paying your last month's salary of £5k as Gross pay (and therefore liable to tax/Ers NI/Ees NI) it pays it to youas redundancy. You save tax/NI, the company saves NI, everyone's a winner apart from HMRC.

HMRC are wise to this so employers can only pay redundancy if your contract terminates at the end of that particular month.

ETA Are you on a fixed term contract, or are you a permie?

[Marcellus]

Ok so a few examples and how I understand it with regard to tax;

1) Employee decides grass is greener and hands notice in, company asks him to leave premises immediately and pays him for his notice period - all taxed.

2) Employer is in financial trouble and decides to reduce head count by one and that head is yours - 1 month notice period in contract - employer pays it but all subject to tax.

3) Employer is taken over/closes place of work and goes through consultation period - 1 month notice period is in contract but employer feels benevolent to employee so offers an additional sum of money/bonus - 1 month is liable for tax but the additional sum of money/bonus.

Usually in option 3 there will be some form of additional contract exchanged with terms which aren't included in the employment contract, such as NDA, no poaching etc etc.

[Countdown]

Marcellus said:

2) Employer is in financial trouble and decides to reduce head count by one and that head is yours - 1 month notice period in contract - employer pays it but all subject to tax.

That would also count as redundancy.

[davejf]

I'm currently going through this myself. PILON is taxed as others have said.

[Marcellus]

Countdown said:

Marcellus said:

2) Employer is in financial trouble and decides to reduce head count by one and that head is yours - 1 month notice period in contract - employer pays it but all subject to tax.

That would also count as redundancy.

my understanding is that if this payment is as defined by the contract then it's not redundancy!

[Countdown]

Marcellus said:

Countdown said:

Marcellus said:

2) Employer is in financial trouble and decides to reduce head count by one and that head is yours - 1 month notice period in contract - employer pays it but all subject to tax.

That would also count as redundancy.

my understanding is that if this payment is as defined by the contract then it's not redundancy!

d'oh! Mea culpa

You're right. If it's the notice period pay it's taxable.