PILONS: Are they getting any clearer?

PAYMENTS IN LIEU of notice ('PILONs') and their tax and National Insurance contributions liabilities have always been difficult subjects for employers to grapple with. Employers may decide that when an employment is terminating they do not want the employee to work his or her notice period and instead the employee is paid a PILON. It is then a question of whether the payment is earnings in the employee's hands because it relates to the employment or whether it represents compensation for the employer's breach of contract; i.e. by not allowing the employee to work the notice period. In the latter case the tax and National Insurance contributions (NIC) treatment is more favourable as the payment would be taxed under ITEPA 2003 s 401 (formerly TA 1988 s 148) with the first £30 000 of the payment being exempt under ITEPA 2003 s 403(1) and...