Payment in lieu of notice

[rbailey28]

My son has recently been dismissed. His gross salary was £2750 per month. His company made a payment in lieu of notice after deducting the tax and NI that would normally be paid. It was actually 28 days PILON, so rounded to £1850 net. Are his employers entitled to deduct the tax and NI even though it is not paid over to HMRC. This payment was not included in his P45, so it seems that either HMRC are being diddled out of the tax or he is being short paid by the amount of tax that would otherwise have been paid. Comments would be appreciated.

[LozaACCS]

If a deduction is made which is said to be in respect of IT and/or NI then the amount must be paid by the ER to HMRC, if the ER does not do so then the ER is committing an offence.
It may be that the ER is making what it believes to be a non taxable PILON of the net amount.
Much depends on the nature of the dismissal and the terms of the employment contact and who is in breach of the employment contract.

[rbailey28]

Thank you Loza ACCS. I believe they are in breach of contract and early conciliation is being applied for with ACAS. If they win at at the Employment Tribunal will they only have to forward the Tax and NI after getting the judgement ? If they lose will the net amount afteter deduction be considered as damages and deemed fair?

[LozaACCS]

No, the employer cannot change its mind as the case progresses.
There is a great deal of ambiguity around the issue of a PILON, I have seen posts on this site suggesting that there can be no such thing as a tax free PILON, this is not correct there are circumstances where a payment is broadly an amount in respect of liquidated damages resulting from the employers breach of contract, such a payment is not earnings from the employment and will not be taxable, nor subject to NI.
There is a considerable body of case law, in practice employers very often tax the payment and leave the former employee to argue the issue with HMRC directly, by doing so the employer treats the payments at the outset as taxable earnings and a liability arises on the employer at that point.
As suggested the employer might accept its breach of contract and offer a payment (a PILON) to the former employee reflecting his loss of income (ie net after tax), he cannot apply deductions and subsequently say the the amount was a PILON which was not liable to a deduction, you should (having examined the P45) challenge the employer to make a formal statement of how it has treated the payment.

[rbailey28]

Hi,

\thank you for your very useful information.