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From 2018/19 a statutory regime¹ applies to payments in lieu of notice (PILONs), with the aim of introducing more certainty and ensuring that all payments in lieu of notice, not just contractual payments, are earnings subject to both tax and NIC.

Prior to 6 April 2018, in order to determine the tax and NIC treatment of a PILON, it was necessary to consider whether there was any contractual right to a PILON with some complex nuances. The rules applying prior to 6 April 2018 are discussed in E4.812A.

Under the revised legislation (ITEPA 2003, ss 402–404), there is, in practice, largely no difference in the tax and NIC treatment between PILONs regardless of the contractual position.

If there is an express or implied contractual PILON, that payment is treated as earnings under ITEPA 2003, s 62. This is the same as the pre 6 April 2018 position. For full details of the case law relevant to when a PILON would be treated as earnings