From 6 April 2018, a new regime will apply to payments made in lieu of notice (PILONs) on termination of an employee’s employment. The effect of the change will be that HMRC will tax as earnings, the basic pay that an employee would have earned had they worked their notice in full, irrespective of whether there is a PILON clause in the employee’s contract. Currently, if there is no PILON clause in the contract, such a payment can usually be made free of tax.
PILON clauses are often included in contracts of employment to ensure that an employer can terminate employment immediately without being in breach of contract, thereby preserving the enforceability of restrictive covenants.
Where a contract of employment ends before 6 April 2018, the old rules for termination payments will apply.
Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.
For further information, please contact Sikin Andela