Pay in lieu of notice - taxable in tax year 2017/2018?

[VirtualHamster]

I've received a P800 today stating I've underpaid tax for tax year 2017/2018

I was made redundant due to company insolvency in this time and received two payments form the insolvency service, one for unpaid wages and one for pay in lieu of notice. HMRC have the payment for unpaid wages on twice under income, and the tax due on this duplicated amount is equal to the amount they think i have underpaid tax for.

The pay in lieu of notice is not listed, and looking at the letter from the insolvency service no tax was deducted from this amount. Googling suggest the rules around this changed in April 2018? Am i correct in assuming that at the time I was paid this was not taxable which is why it isn't listed?

It depends on what your contract at the time said. Was it contractual?

It was statutory notice pay paid by the insolvency service.

Pay in lieu of notice is taxable in the year it's paid - if you hadn't been made redundant you would have received it as a normal wage and paid tax and NI on it.

I was once made redundant in February and received 3 months pay in lieu of notice but I paid tax on it all in that tax year year even though technically 1 month of it would have been received in April had I not been made redundant.

Redundancy pay is NOT taxable (up to about 30k) but that's different to pay in lieu of notice,.

Your overdue/unpaid wages shouldn't have been taxed twice though.

It sounds to me like HMRC have classed the payment in lieu of notice as unpaid wages if I understand what you're saying correctly. That is if the amount for pilon was the same as the unpaid wages.

Regardless you pay tax on everything, unless its actual redundancy pay under 30k, but it has to be declared as redundancy pay.

I was made redundant in 2013 and received an actual redundancy payment which was stated as such on my payslip and payroll communicated this to the tax office. In 2016 I left a job after my maternity leave but when I was on a long period of annual leave added on, there was a long notice period and my employer decided to pay me pilon (as my maternity cover was still there) - the pilon was taxable.

I had two payments from the insolvency service. One for unpaid wages, which shows tax deducted and appears twice on the list of payments HMRC have recorded. One for pay in lieu of notice (1 week statutory) which did not have tax deducted and which does not appear on the list of payments. Both payments were made in the 2017/2018 tax year. The payments are for totally different amounts.

There is no such thing as statutory pay in lieu of notice - do you mean you received statutory redundancy?

Pay in lieu of notice is exactly that, it's an amount equal to your notice period that you didn't end up having to work.

Regarding huge wages recorded twice, just ring HMRC up and tell them - they make mistakes sometimes and will happily correct it.

It's the term the insolvency service uses

Use this service to claim money if your employer is insolvent and you have not been paid for your notice period (‘statutory notice pay’).

www.gov.uk/claim-loss-notice

There is no such thing as statutory pay in lieu of notice

Well, there is - there is a statutory notice period and if you don't work it, you are still entitled to be paid for it, so it could well be called 'statutory pay in lieu'. Especially if the company went bust.

OP - PILON is usually taxable. The law changed in 2018 but it didn't really change anything, it just wrote into law what was the rule in HMRC anyway, to stop people trying (and mainly failing) to get round it.

Pre 2018 it was taxable if it was part of your employment contact, or if your employer generally paid PILON (so contractual by custom and practice).

It could be worth writing to HMRC and saying the payment was not contractual and, as it was clearly not paid by the employer, it was statutory and so you had no expectation of having the pay in lieu* (as opposed to working your notice which is clearly taxable), therefore you believe it was not taxable at the time it was paid. Worth a shot, see what they say.

• technically it is referred to an an 'emolument of employment' - if your contract said "and we may choose to pay you in lieu of your notice period" then it became a contractual payment you could reasonably rely on, and therefore an emolument of employment - the latter is always taxable.| If it was not in your contract that they could do this then you had no reasonable expectation so it's not taxable. unless the company routinely paid it. HMRC generally worked on the basis it was always taxable though.

I've just found the letter that came with the payment.

It has gross entitlement, then a deduction for "minus notional tax" then a reduction to the weekly earnings limit.

So there is a deduction for notional tax, but presumably HMRC has not actually received anything as it's 'notional'. So still none the wiser.