Chester 01244 405555

Grosvenor Court
Foregate Street Chester
Cheshire CH1 1HG
DX: 19990 Chester

Shrewsbury 01743 443 043

Lakeside House
Oxon Business Park
Shrewsbury SY3 5HJ
DX: 148563 Shrewsbury 14

Manchester 0844 800 8346

Pall Mall Court
61-67 King Street
Manchester M2 4PD

Send us a message
Our Offices

Termination Payments and PILONs: What is Taxable?

8th February, 2013

An executive’s tax return was investigated due to a payment of £123,750 which was paid to him on his termination of employment. The case of Goldman v Revenue and Customs Commissioners [2012] UKFTT 313 (TC) involved the former executive, Mr Goldman, appealing against an amendment to a previous tax return by the Respondent commissioners.

When Mr Goldman began his employment with his former employer, he negotiated a clause in his contract of employment to provide for a payment in lieu of notice “to make a payment in lieu of notice … within 14 calendar days of the Termination Date” (“PILON”) should his employment be terminated. The PILON was broadly equivalent to 12 months salary. Six months after he commenced employment, he was dismissed without notice and his employer failed to make the PILON within the agreed 14 day period. After negotiations, Mr Goldman and his former employer reached a settlement in which Mr Goldman received £123,750. This was less than the entitlement in his contract of employment. Although this payment was described as a PILON in the settlement, when Mr Goldman completed his tax return, he did so based on the first £30,000 not being taxable as it was a payment following termination of employment within the Income Tax (Earnings and Pensions) Act 2003 Pt 6.

The commissioners in this case argued that the payment was “general earnings”, “taxable earnings” and “net taxable earnings” and therefore claimed that Pt 6 did not apply. Mr Goldman based his appeal on the fact that the payment was a payment in settlement of a claim for wrongful dismissal rather than a PILON; therefore it fell within Pt 6. The tribunal dismissed Mr Goldman’s appeal. It was held that:

  1. A PILON made in pursuit of a provision within a contract of employment, enabling the employer to terminate the employment, was to be regarded as an emolument from that employment;
  2. There was no doubt that if Mr Goldman had received a payment to the full extent of his entitlement under his contract of employment it would be considered an emolument of his employment; and
  3. Therefore there was no reason why the payment he received should be any different as the negotiations between Mr Goldman and his former employer were aimed at enforcing his contractual entitlement.


Taking into account the fact that there was no real force to Mr Goldman’s claim that he was settling for wrongful dismissal, or that the payment was damages for breach of agreement, the payment was held to be his contractual entitlement and therefore the full amount of £123,750 was considered “earnings” and was liable to tax.

This case highlights the importance of being aware of tax issues facing your business when terminating employment. Our specialist solicitors at Aaron & Partners can advise you in relation to the issues which may result when doing so. For advice or further information please contact Clive Pointon by sending an email to [email protected] or via telephone on 01244 405513.

For further advice or information regarding any employment queries, please contact Claire Brook by sending an email to [email protected] or via telephone on 01244 405575.

You might also be interested in...

Legal expert’s data protection workshops pull in the crowds

22nd May, 2018

With the General Data Protection Regulation (GDPR) coming into force in May, businesses across Shropshire have been flocking to hear more about the new laws Paul Bennett, a partner at law firm Aaron & Partners LLP, has been delivering seminars in partnership with the Shropshire Chamber of Commerce An employment solicitor from Shrewsbury is urging businesses across the... Read More »

Experienced HR leader joins Aaron & Partners LLP

15th May, 2018

Experienced HR leader joins Aaron & Partners LLP Law firm with offices in Chester and Shrewsbury appoints Kate Robertson to drive HR strategy for more than 120 staff and to support the company’s growth Chester law firm Aaron & Partners LLP has strengthened its senior leadership team with the appointment of an experienced human resources manager. Kate Robertson... Read More »

When you should NOT pay the bailiff…

24th April, 2018

Jan Chillery, Insolvency Partner at Aaron & Partners LLP, shares her experience and the reasons why we should be cautious before paying so-called “bailiffs” over the phone or online without vetting them first. My neighbour has told me that recently he had a CCJ (County Court Judgment) against him. A day or so later, he received a phone call... Read More »

Contact Us