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Redundancy and salary sacrifice

Can you sacrifice PILON?

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An employee is to be made Redundant at the end of the month.

They have been provided with a summary of their redundancy package, which includes 3 months Payment In Lieu of Notice (PILON).

They have requested that we use Salary Sacrifice to pay the PILON straight into their pension (Redundancy Sacrifice), to avoid an immediate high tax charge and NI.

There appears to be some confusion over whether this is possible, as a colleague has stated that 'under the tax regulations all notice pay is required to be taxed. We’re unable to process tax payments on a gross basis anymore.'

However some websites infer that any parts of the Redundancy package that is subject to tax and NI can be 'sacrificed'.

Does anyone have a definitive answer?

Thank you in advance.

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By DJKL
18th Aug 2020 09:33

https://www.pensionsadvisoryservice.org.uk/content/spotlights-files/uplo...

This may partly assist although is not particularly specific re sacrifices, however it is from a reliable source and explains PENP.

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By Munch
20th Aug 2020 11:43

Both the articles linked assist. However, do not forget the employment contract and terms of redundancy. If the nature of redundancy is not specified and, if I were the employee, I would be looking for my tax free lump sum (if under 30k). It is an interesting point and one that SMTs should think about at the outset. I have never seen such an agreement and nor, frankly, would I impose it. If you are made redundant you would and should be entitled to cash. The Pension should be an option. I have sympathy for companies trying to avoid costs right now, but more for the employee out of work. It was the case that NIC on redundancy was not payable. This was changed but delayed to 6.4.2020. I would check with HMRC directly as it may have been delayed again but I have not seen it anywhere. Maybe with covid they delayed again?? Still no tax or NIC on redundacy under £30k.

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By RJD101
21st Aug 2020 14:36

Thanks everyone for the information.

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