PILON advice please…

[Mapleunicorn]

Hi, any tax people of here that can help me wrap my brain around something please?

I’m at risk of redundancy and negotiating a settlement. I’m being offered PILON, enhanced redundancy pay (ie uncapped) and an ex gratia payment. Excluding PILON my total payment is under the £30k cap so tax free. My understanding is that PILON is taxable.

im pushing for more and work has suggested that I work my notice period instead of PILON (3 months) as apparently this would be significantly better for me from a tax perspective. I can’t see how?? Would I not just be taxed the same? I’m not due any bonuses or anything. The only tangible benefit I can see is I would get my car allowance

Am I misunderstanding how PILON tax works?

No I cannot see any reason why you would be better off tax wise by working your notice rather than PILON. I am surprised it is your choice though, if your company want you to work your notice, they just need to tell you.

Would the extra few months of work take you over some time boundary when your redundancy might increase? Eg length of service.
Or would you pass some tax cut off date that might mean you'd get more take home payout?

Unless your notice period straddles 2 financial years it won't make any difference whether or not you work your notice. I'd take the pay and find other work (you can double your income!)

Up to £30k termination payment I'd free from tax.

PILON, usually contractual attracts tax and NI.

It depends on your notice period and annual income. If PILON is for more than one month, the rolled up payment may put you into a higher tax bracket for that month although the amount paid would be reclaimable if you didn't get another job straight away.

If you work your notice and it's three months, you will benefit from your car, pension contributions and annual leave accrual.

It might be worth working it if it's three months notice. That will take you to mid Jan when the jobs market tends to pick up after a Novemner/December lull. May also make your CV less gappy. BUT you will have to be working for people who are making you redundant.

POINT: If you are on three months notice and they may need you to work beyond the redundancy date, is your job actually redundant?

If you arebon less than three months' notice I am struggling with what the benefit might be

Thanks everyone. I have had some further conversations and I think I get it now.

They are trying to be decent and figuring out a way to give me more money without giving me more than anyone else (my personal circumstances are different to the others being made redundant).

if I work my notice then they will give me the equivalent of what they would have given me as PILON but as ex gratia which means I don’t pay tax on it

thanks for confirming I was missing a bit of the picture!