Client is about to be made redundant. Part of the termination payment is described as follows:
"You and the Company agree that the amount of the PILON is equal to or exceeds the amount given by the formula in 402D ITEPA 2003 and, accordingly believes that the Employee’s Post Employment Notice Pay within the meaningof 402E of ITEPA is nil."
I'm having trouble parsing this text. If the PENP is nil, then doesn't that mean the PILON is taxable as earnings? However, the thrust of the agreement seems to imply that the payment is eligible for the £30k exemption.
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What does the employment contract say? Does it entitle the employer to make payment in lieu of notice?
I agree that the PILON is taxable. Just wondered if this was where the idea that the PILON may not be taxable is coming from.
Under the new rules, PILONS are always taxable. Only the first £30K of redundancy and termination payments can be non-taxable.
It looks to me like they are referring to any excess of PENP pay over that reached by the formula, and that they have paid no excess so that is NIL.
I don't read it as meaning that the PILON is NIL.
I can understand the confusion.
For starters, 402E does not define PENP, it defines trigger date and the post-employment period.
If the amount of the 'PILON' exceeds the 402D formula, then the excess should be covered by the £30k exemption. I have no idea what it is that they are referring to as £nil.
I should have better things to do with my time, but I've been thinking about this further. I'm wondering (and it's the only explanation that makes any sense to me) if they have already decided that the PILON is taxable (perhaps it's contractual). And then applying this as 'T' in the formula which in this case results in £nil.
If you follow the legislation through, a PILON will always be taxable, whether its contractual or not, because the non-taxable bit is a function of how long the notice period is and how much the pay normally is; conventionally, that's how you calculate what payment is due in lieu of notice too!
I’m aware of that, and wasn’t suggesting that it wouldn’t be taxable. I am trying to make sense of the OP’s wording.
If the PILON is contractual then it will be taxable under first principles, and is likely to be T in the formula. If the ‘PILON’ is not contractual then it becomes taxable in accordance with the formula. The outcome will be the same in most cases.
Your client should ask for the letter to be written in plain English.
Client may mention that he has an estimated fee of £500 plus VAT for translation services.
It doesn't help that the grammar is poor:
"You and the Company...believes that..."
If it has any effect, then that effect is either to subject an element of the payment to tax when it should not be taxed or vice versa. HMRC might disagree, especially if the vice versa applies.