25 July 2006

Commissioners give some relief on taxability of termination payments

BPIF Legal has had enquiries recently from several members who are being pursued by the Inland Revenue over the question of tax payable on Payments in Lieu of Notice (PILONs). The Revenue has been taking the line for the last few years that if PILONs are habitually made they are taxable. Don’t bother with the reason why, since the Special Commissioners of Income Tax Decisions, in the case of SCA Packaging Ltd v Revenue & Customs, have dismissed this argument and so it appears that habitual PILONS are safe from taxation in those circumstances. This helps the common practice of paying PILONs gross as a sweetener. Any members who are being pursued by the Inland Revenue should refer them to this case. They should also contact BPIF Legal for further assistance. However, this only applies to PILONs which are non-contractual. If your contract allows for PILONs, then tax is likely to be payable. Remember that documents can be incorporated into contracts, so wording in your Redundancy Policy could make a PILON contractual, as could obtaining an employee’s agreement to a PILON prior to termination. For further information contact BPIF Legal