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.