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ARTICLE · 07 MARCH 2018

Tax On Termination Payments

Travers Smith LLP
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On 6 April 2018, the way that termination payments are taxed is going to change. Employees will be taxed on notice pay, even where there is no PILON in the contract.

United KingdomEmployment and HR
Mahesh Varia
Mahesh Varia
Siân Keall
Siân Keall
Ed Mills
Ed Mills
Tim Gilbert
Tim Gilbert
Author LinkedIn connections

On 6 April 2018, the way that termination payments are taxed is going to change. Employees will be taxed on notice pay, even where there is no PILON in the contract.

At the moment, tax treatment of termination payments differs depending on whether there is a payment in lieu of notice (PILON) clause in the employment contract. So with:

  • A PILON clause: the PILON payment is taxable and any genuine termination payment over that is tax free up to the first £30,000
  • No PILON clause: any termination payment can usually be paid tax free up to the first £30,000, even if it includes payment for the notice period (although some employers do choose to deduct tax from the notice pay).

From 6 April this will change so that, where the employee has not been given notice (or been given less than full notice) and there is:

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