Where an employee receives a contractual payment in lieu of
notice (PILON), it is chargeable under Section 62 ITEPA 2003 as
earnings from the employment (see
EIM00515).
A contractual PILON is one that has its source in the
contractual arrangements between employer and employee. Such
arrangements can take a variety of forms, including:
It is important to consider all possible contractual sources.
(This text has been withheld because of exemptions in the
Freedom of Information Act 2000)
Sometimes these arrangements give the employer a choice or
discretion of giving notice or making a PILON. That was the
situation in the EMI case, where under the terms of the contract
the employer had a reserved right to make a payment in lieu of
notice. It was accepted that the right was exercised and the Court
of Appeal held that such a payment is chargeable under Section 62
ITEPA 2003.
An employer in this situation can choose not to give proper
notice and also not to make a payment in lieu under the contract.
If so, the terms of the contract are breached, and a payment for
that breach falls within Section 401 ITEPA 2003. It is dealt with
as a damages payment (see
EIM12978 and Example 3 in
EIM13924). Such cases must be examined
critically to ensure that there is evidence that the employer did
in fact choose to breach the contract. The case of Richardson v
Delaney (74TC167) is an example of a case where the High Court
rejected the employer's claim that such a breach had occurred.
If there is no contractual source for the PILON,
consider:
