PILON

[mark238]

I know this seems to have been asked a number of times on this site and from what I can gather I don't believe my PILON should be taxed. Although I have been advised differently from my local citizens advice.

My contract states that if I wish to leave the company I must give 3 months notice and if they no longer require my services they must give me 3 months notice.

They terminated my contract Friday gone and I questioned why my PILON was taxable to which they have said the HMRC advise them to do. My question is who is right and where can I go from this point forward ?

Many Thanks
Mark

[Peter D]

You have received a PILON and therefore you are effectively on gardening leave and your actual termination is not until the 90 days is up. Thus this payment is taxable.
Read :
http://www.hmrc.gov.uk/bulletins/tb24.htm#payment_in_lieu
Regards Peter

[mark238]

Thanks Peter

Are they entitled to put me on gardening leave if my contract does not include it ?

Regards Mark

[AvocadoK]

If they terminated your contract last week, you are no longer employed by the company and you cannot be on gardening leave. As to whether the PILON is taxable depends largely on what exactly your employment contract said about your entitlement to notice and whether the company was entitled to pay you in lieu of notice.

Your former employer is playing safe by deducting PAYE, and there is little you can do to stop them. If the PILON should have been paid without PAYE, your best bet is to complete an SA return (after 5 April 2012) and claim the tax back that way. (You will of course be out of pocket for the best part of a year). HMRC will want to see your employment contract and all the correspondence around the termination, to check if the PILON is taxable. You may need professional help, as HMRC is unlikely to decide in your favour, in the first instance.

AK

[mark238]

Thanks for that AK.

My contract is very basic and only states that which I said in my first post, nothing referring to payment in lieu gardening leave etc.

The letter I received on Friday states that it is to be treated as formal notice of dismissal due to redundancy with immediate effect on the 24th June 2011 and they will make payment as compensation for notice not being given accordance with terms of my contract.

Thanks
Mark

[PKIB]

I agree with AvocadoK. They have terminated your contract and made a payment of damages for not giving three months notice. The rules around what constitutes a PILON are so complex and HMRC never make them clear, that many companies are choosing to deduct PAYE in every instance leaving the employee can argue the case with HMRC, not from a strong position.

The alternative is that they pay it gross and when HMRC decide that it was taxable income, the company is saddled with the PAYE liability and the employee is long gone by that stage.

[section 44]

My contract is very basic and only states that which I said in my first post, nothing referring to payment in lieu gardening leave etc.

What about staff/employee handbook? What is the employer usual practice in this area (deemed PILON)?

[mark238]

There is no mention of a PILON in the handbook.

[section 44]

usual practice/expectation?

[mark238]

The company hasn't made any redundancies since around 2002 yet last month paid off 19 all of whom had varying years of service and have left immediately. I was the only one with a 3 month contract which was specific to my role.