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Taxation of payments in lieu of notice

20 July 2021

In April 2018 new rules took effect to ensure that all payments in lieu of notice (PILONs) are subject to income tax and NICs in full. Although the rules emerged from a Government consultation on the simplification of the tax treatment of termination payments, the rules are complex and in many cases increase the costs of both employers and employees.

The rules require employers to calculate an employee’s post employment notice pay (PENP) – broadly the basic salary that the employee would have received during any unworked period of notice minus any contractual or deemed PILON – and to operate PAYE and NICs on the PENP in full.

Our Inbrief “Taxation of payments in lieu of notice” summarises the rules and gives some examples.

Click the Download file(s) button to see the full Inbrief.

For further information please contact Victoria Goode or your usual LS contact.

***NOTE: We have produced a termination payments calculator to help you with the calculations described in this inbrief. It is available here. We will update this from time to time so bookmark this page to make sure you are always using the most up to date version***


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