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E4.812A Payments in lieu of notice (PILONs) (pre 6 April 2018)

Prior to the introduction of statutory rules for 2018/19 onwards (see section E4.802C for commentary on post-employment notice pay (PENP)), the general principles applying to payments on cessation of employment (see E4.405) governed the taxation treatment of payments in lieu of notice ('PILONs'). Where the payment is not chargeable as earnings, it will generally fall within ITEPA 2003, ss 401–416 (Pt 6, Ch 3), subject to the exemptions provided in that chapter (payments within ITEPA 2003, s 401 fall within the definition of specific employment income in ITEPA 2003, s 7(4) by virtue of ITEPA 2003, s 7(6) and are taxed as employment income: see ITEPA 2003, s 6(1)).

There is a considerable body of case law in this area. Although most of the cases were decided by reference to the legislation as it stood in ICTA 1988, before the rewrite of the Schedule E provisions in ITEPA 2003, the rewritten legislation merely changed the terminology with only minor amendments