There has long been an argument as to whether or not payments in lieu of notice (PILON) should be treated as taxable earnings and be subject to tax and National Insurance Contributions in Settlement Agreements. The Government has now clarified this, starting from April 2018 all PILON sums will be taxable, irrespective of whether there is an express term or not in the contract of employment.

On a positive note, the Government has confirmed (in a response to consultation) that it will retain the £30,000 tax free exemption on termination payments. However, if you make a payment above £30,000 (which at the moment is currently only subject to income tax), as of April 2018 onwards, you as the employer will also have to pay employers' National Insurance Contributions.

Fiona Haworth. You can contact Fiona on

If you feel that you need guidance or advice with your HR requirements, please call Practical HR on 01702 216573 or email Fiona on the above.

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