New HMRC guidance on notice pay
Notice pay formula. Since 6 April 2018 payments to employees or former employees in respect of notice periods are taxable and liable to NI in the same way as salary. This includes payments in lieu of notice (PILONs) which previously might have been within the rules for termination payments. These allow up to £30,000 to be paid tax free. Where a PILON is only part of a termination payment, a formula must be used to work out the taxable amount. This is called post-employment notice pay (PENP). However, HMRC has said that the formula has a flaw.
Correction. HMRC has realised that if an employee is paid monthly but their notice period is given in days or weeks, the formula gives differing results depending on when in the year the notice begins. HMRC has therefore modified the formula for this situation (see The next step ).
For details of the revised PENP formula, visit http://tipsandadvice-business.co.uk/download (CD 21.05.08).
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