Anyone knowledgeable about PILON and tax?

[MonsterCalling]

NCed and am going to be a bit vague about some details - sorry in advance but I am trying to help a friend who has had a really tough time. I will call her Jane.

Jane was placed on garden leave on full pay from employer A with an agreed end of contract date some months in the future to reflect the usual notice period, with agreement that if Jane found alternative employment in the meantime she could hand in her notice sooner and receive pay in lieu of notice. This has now happened and she has received her final pay including PILON. She has paid the usual deductions of tax and national insurance through payroll at employer A. She is about to commence a new job at employer B and will receive her first payslip from them at the end of this month. Her total income for the financial year 2023-24 will be pushed over £100k (just) due to the PILON and it's her understanding that she will therefore need to do a self-assessment tax return by January 2025.

Her question is this: is she likely to need to pay any further tax on her income for 23-24? She has had an awful few months while this has all been playing out and the lump sum would be very useful for a particular purpose but she is terrified to spend any of it in case she has a massive tax bill coming her way in January '25. Is this something that will be resolved through PAYE or does she need to set aside a sum in anticipation of this? Is this something that requires specialist advice, and if so please can anyone recommend the best source?

Thank you so much if you have got this far.

I’m not an expert but as nobody else has replied yet I’ll have a go!

She might owe some extra tax yes, as going over £100k means that she will start to lose her personal allowance so she’ll have to pay the tax due on the bit of the personal allowance that has been lost.

i think though that the most she will
owe will be about £5k and that would be if she lost all the personal allowance, and it doesn’t sound like she will if she’s only just going to go over £100k.

I don’t think it will be resolved through PAYE as it sounds like it won’t be clear until the end of the year that she will have exceeded £100k.

One option is for her to just pay a bit more into her pension with employer B - enough to make sure she stays under the £100k.

PILON is taxable and if she earns over 100k in 2023-4 she may well need to pay extra.

Thank you both so much for responding.

@LIZS yes, she has already paid tax on the PILON via payroll at employer A
@ChessieFL do you know if the loss of personal allowance is always paid via self-assessment or can it be done by PAYE if the overall income for the year is known by the payroll department?

If you go over £100k in tax year 23/24 then you have to do a self assessment and repay by that mechanism. Payroll can't do it, they can only do what the tax code tells them. As PP suggested the pension is a good bet.

Next year 24/25 a self assessment won't be required until income hits £150k.

The employer may well deduct PAYE at source anyway, removing the need for a self assessment tax return or additional payment.

This is what mine did in a similar situation. It means I got paid a lot less upfront than the agreed sum.

However, I then got a tax rebate as I didn't work the rest of that financial year.

It should be fairly easy to work out the sums by going on the HMRC website, looking at overall earnings, then working out total tax liabilities for that year.

I wish your friend well. 💐