Tax on PILON

[Imokyoureok]

DH has been invited to resign from his job rather than go through a potential disciplinary investigation. He maintains his innocence but feels that he would not want to continue working for the company even if he was able to prove himself. He has therefore agreed to resign in exchange for 3 months PILON.

However, I realise that since he will be receiving the money as one lump sum this will mean he will be taxed hugely. He is a higher rate taxpayer and I estimate that the additional tax will mean that instead of receiving the equivalent of 3 months salary he will really only receive about one and a half months. This will have a massive negative impact on us if he does not manage to find another job straight away.

So my question is if there is anything we can do to negate this? If not, will he be able to claim the tax back the following month or will he have to wait until April and the new tax year?

It would be the same tax over the period though, as he should get a rebate for the remaining personal allowance for the period that he isn't working.

He could notify HMRC straight away that he isn't moving into another position immediately which may give him a tax refund, but if he starts elsewhere before the new tax year, it may confuse HMRC!!

Yes I understand that he would pay the same amount of tax overall.
It's just we have no idea how long it will take for him to find a new job and we need the money to pay the mortgage and bills in the meantime not in a big repayment in April. It's all so stressful!

Hmrc are slow movers so you might not be able to get a refund much sooner anyway. I have worked in payroll though and sometimes on request in the same situation we have paid it monthly. You will also overpay ni as well if you get paid in one chunk which is harder to get back.

He could ask for the money to be paid in 3 instalments?

Yes I agree that he'll get it back (the tax) if he overpays on the year. NI is different though, and depending on amounts he may well lose out on that. Possibly not if his monthly salary is quite large anyway (as NI does have upper limits), but I would ask about this first before agreeing to anything.

Unfortunately he has gone ahead and handed in his notice without seeking any advice! So there's little to no negotiating power now.

Sorry to hear your DHs situation. As part of his departure, can his employer give him a bland reference on their letterhead to take away with him. Just "Mr ImOK worked from x date to y date as an XYZ Manager"

Best if he can get this before final departure. It's no cost to them but for him it's very useful to help him seek new employment with a reference in hand.

Thanks. He’s ok for a reference it’s just the money side I’m concerned about now.

Get specialist advice. Often home insurance legal expenses cover includes for employment disputes.

If there is no clause in the contract specifying that a PILON can be made and one cant be implied, it can be made tax free as a damges payment. Law is changing though in April 2018 for anyone reading at a later date - good article here. www.brodies.com/blog/employment/tax-termination-payments-april2018changes/

It is more likely than not that there will be a PILON clause but sometimes not if it is an old contract. Make sure the termination payment includes everything - including annual leave that would have accrued during the notice period, had it been worked

There is a PILON clause unfortunately. They have said they can’t make 3 separate payments without placing him on gardening leave. That’s not ideal as then he cannot get another job for months.