All payments in lieu of notice (PILONS) made on or after 6 April 2018 will be subject to income tax and NICs as changes introduced by Finance (No 2) Act 2017 come into force. The distinction between contractual and non-contractual PILONs has been removed for payments made on or after 6 April 2018 where the employment also ended on or after that date.
HMRC said in a press release issued on 6 April: ‘this means the tax and NICs consequences are the same for everyone and are no longer dependent on how the employment contract is drafted or whether payments are structured in some other form such as damages’.
Employers will have to use a new ‘post-employment notice pay’ formula to work out the amount of the termination payment which is chargeable as general earnings.
Chris Thomas of Pinsent Masons commented: ‘aside from the significant extra tax...
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