Payments in lieu of notice are known as PILONs. In essence, a PILON is a payment made to an employee when proper notice of termination is not given. The PILON is paid to compensate for the wages and benefits not received during what should have been the notice period.

This guidance note outlines the often complex tax and employment law issues which had to be addressed up to 5 April 2018, to decide whether PILON ought to be treated as normal employment income (subject to PAYE tax and NIC in full) or as part of a termination package (qualifying for the £30,000 tax exemption and not treated as earnings for NIC purposes). From 6 April 2018 the treatment of PILON is determined by statute and usually attracts PAYE tax and NIC in full. For further information on the position from 6 April 2018 onwards, please refer to the separate How could a termination payment be taxed? guidance note.