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Leaving your job? Watch out for the Taxman!

On 6th April 2018 changes will be made to the tax treatment of payment in lieu of notice (PILON). How will this effect you?

A payment in lieu of notice (PILON) is money given to an employee when their employment is terminated by the employer without notice i.e. the employee doesn’t work any notice period.

PILON can either be contractual due to a clause in an employee’s contract of employment or non-contractual which will be classed as a compensatory payment. Currently where PILON is a contractual right the employee must pay tax on the amount in the usual way as it is deemed to be normal earnings rather than compensation.

Where PILON is made in the absence of a contractual provision, at the moment the first £30,000 can be paid free of tax. This is because the payment is regarded as damages for breach of contract rather than normal earnings.

From 6th April 2018 the current contractual/non-contractual distinction is being removed from PILON payments and all PILON will be treated as earnings and will therefore taxable.

The rules apply to when the PILON payment is made and not when the employment is terminated.

If you need any help with any employment issues including advice on PILON contact Melissa Hamilton or Gerard Rooney now on 01606 74301 or email gmr@mosshaselhurst.co.uk or melissa.hamilton@mosshaselhurst.co.uk