Termination Payments – Changes to PILON status

A recent government proposal is likely to make all pay in lieu of notice (PILON) payments taxable and NI deductible from April 2018.

This change will make termination payments costlier for businesses if the proposal is accepted as legislation.

  • Currently non-contractual termination payments up to £30,000.00 are paid tax and NI free to leavers. This also includes pay in lieu of notice (PILON) payments provided they are not contractual.
  • The most recent government proposal would make all pay in lieu of notice (PILON) payments subject to tax and NI deductions regardless of them being contractual or not.
  • This change would make termination payments costlier for employers and it would also reduce the actual net amount the employees will receive.
  • This is not set in stone yet, but if accepted as legislation this change will come into force from April 2018.