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Up to 5 April 2018, certain payments in lieu of notice were not taxable, primarily, those not contractually required to be made. This is no longer the case.
Employers will now need to pay Income Tax and Class 1 National Insurance contributions (NICs) on an element of all termination payments from 6 April 2018, whether or not they are contractual payments.
Tax now payable on any payments in lieu of notice
This measure is intended to bring fairness and clarity to the taxation of termination payments by making it clear that all PILONs, rather than just contractual PILONs, are taxable earnings.
This means the tax and NIC consequences are the same for everyone and are no longer dependent on how the employment contract is drafted or whether payments are structured in some other form, such as damages.
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