Post employment notice pay

When a business and employee end their employment relationship on agreed terms, such as during a settlement agreement, some payments to the employee are taxable and some are tax-free (up to £30,000).

One key difference in a settlement agreement was where the employment contract contained a ‘Payment in Lieu of Notice’ (PILON) clause, the monies associated to that part of the settlement would be taxable. However, where there is no PILON clause in the employment contract, the same amount would be owed to the employee, but rather for breach of contract. This amount would not be taxed as part of a settlement agreement.

However, from 6 April 2018, HMRC have revised the legislation surrounding this point so that the employer must tax the basic pay an employee would have earned had they served their full notice period (so called post-employment notice pay) and, therefore, closing the tax-free loop-hole. 

CONTACT CHRIS

If you would like more information or advice relating to this article or an Employment law matter, please do not hesitate to contact Chris Cook on 01727 798089.

© SA LAW 2018

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