Employment law update: changes to PILON payments

The tax treatment of termination payments made on or after 6 April 2018 is changing. Taxation of payment in lieu of notice (PILON) will no longer depend on whether there is a PILON clause in the employee’s contract. Instead, for any part of the notice period which is not worked, employers must treat a corresponding amount of the termination payment as earnings, which means it will be subject to deductions for tax and NICs.

The rules on foreign service exemption are also being restricted. Only employees who are not resident in the UK for the tax year in which employment terminates will benefit from the exemption. The proposal to make any part of a termination payment which exceeds £30,000 subject to NICs (as well as tax), will not come into force until 6 April 2019.

For more information, get in touch with our employment team.