What is PILON?
PILON is a payment made to an employee when employment is terminated without notice, instead of the employee working through a notice period and receiving pay in the normal way.
It is different from ‘gardening leave’, in which the employee is still in employment during the notice period and is paid during that period, even though he or she is not present at work.
What has changed?
Tax laws have changed regarding PILONs from 6th April 2018.
All payments in lieu of notice on, or after 6 April 2018 are chargeable to income tax and Class 1 National Insurance Contributions (NICs), whether or not they are contractual payments.
Please note this applies to basic pay only i.e. anything paid over and above this, we can use the £30k threshold.
PILON payments will not benefit from £30,000 threshold.
Statutory redundancy payments are not PILON payments and they benefit from the £30k threshold.
If an employer pays more than the PILON the remaining balance should be tax free up to the first £30,000.
Carried forward losses can now by surrendered via Group relief
Carried-forward losses can only be used by the company that incurred the loss, and not used in other companies in a group. Additionally, certain losses can only be set against certain types of income, for example trading losses can only be used against trading profits.
Losses arising after 1st April 2017 can be set off against own and group company profits. Type of income restriction is also removed.
There is a new loss restriction i.e. only 50% of the carried forward losses can be relived. Don’t worry there is an annual threshold of £5 million for each standalone company or group, ensuring 99% of companies are unaffected by the restriction.
- Capital losses not effected by these new rules.
- Losses expire when trade closes.
- A company can only surrender losses under group relief after its has used its own carried forward losses against its current year’s profit to the full extent.
- Similarly, company claiming losses under group relief has to first exhaust its own carried forwarded losses before claiming any under group relief.
- Group Allowance allocation statement is also required.
- Basic guidance in simple English – see HMRC note.
- HMRC has recorded a webinar on this topic – click here. Then Ctrl + F > “reform”.
Current turmoil in restaurant trade and what to do about it.
- Brexit vote has weakened the sterling resulting in higher cost of food and drinks.
- Living wage has resulted in wages increasing faster than inflation and even faster than restaurants can increase their own prices.
- Many new entrants in the market have resulted in pushing wages higher.
- Private equity players rushed in this sector in the last few years and offered higher rents resulting in pushing everyone’s rent up.
- Higher rents resulted in higher Business rates.
- New service model like Deliveroo have emerged which increased competition and take a share of profits.
- Supply has expended ahead of demand – there are too many restaurants.
- So many choices have reduced the frequency of customer visits.
What to do?
Everyone tells me the problems but what are the solutions?
- Very tight control of costs:
There are three main areas where costs can be controlled.
- Wage cost – reduce staff through natural turnover. Staff members also have a learning curve and longer one has been in a job better they can do it.
- Cost of goods – chefs should be encouraged to always look for new suppliers and go to the source of food directly like farms.
- Overheads – Every cost to be analysed and ways thought to reduce it.
- Think and encourage everyone in the business to think
- How to evolve and improve the offering – quality, cost, presentation etc.
- Increase lunch trade by shorter menus.
- Food coming out quicker from the kitchen.
- Lighter food which is easy to digest.
- Improving beverage sales as they take less wage cost to prepare.
- Staff idea board can help. Management does not have monopoly on ideas.
Things are going to get worse before they get better. Tighten your belts and better the product and sit tight to weather the storm.