Payments in Lieu of Notice (PILONs) have, in some cases, provided the opportunity for a leaving employee to receive substantial exemptions from tax and national insurance contributions (NIC). Reforms to be legislated in the 2017 Finance Bill will prevent all PILONs from avoiding taxation whether they are contractual or not, and also require that employees’ basic pay be taxed if they do not work their notice period.
Parallel NIC legislation will align with income tax treatment for termination payments over £30,000, so that tax and employer’s NIC will be due. Termination payments excluding PILONs under £30,000 will continue to be exempt from both tax and national insurance.