Termination Payments

To clear up the confusion with the current rules for PILON payments (Pay in Lieu of Notice), changes are being introduced. The changes will come into effect from 6th April 2018 for all PILONs. Regardless if they are contractual or non-contractual, they will now all be subject to Tax and class 1 NICs.

As part of the changes, a new calculation has been introduced called PENP ‘Post-employment notice pay’. This comes into play when an employee was terminated without full, or proper, notice being given. This payment will be subject to tax and NICs both employee and employer in full.

HMRC has released guidance that statutory redundancy pay is not part of the PENP calculation and can be paid free of both tax and NICS within the £30,000 tax exemption limit.