SE12979 - Termination payments and benefits: payments in lieu of notice (PILONs): agreements

Instead of acting unilaterally as in SE12978, employer and employee may reach an agreement to terminate without proper notice on payment of a 'PILON'.

Where this is done before termination is in prospect, it is simply a variation in the terms of employment and any subsequent 'PILON' will be contractual and taxable under Section 19 ICTA 1988, following SE12976.

If it is done only as part of the process of termination, the payment will not be from the employment but from the agreed terms for its destruction and is dealt with as a damages payment. In those circumstances the payment falls within Section 148 ICTA 1988 even though no breach of contract occurs. If the agreement settles an existing contractual provision, Section 19 ICTA 1988 will apply (see example SE13924)

Note that an agreement may simply put into effect a pre-existing entitlement: see Example 2 in example SE13924.