Taxes on Payment in lieu of notice (PILON) and salary overlap

Question

Assuming that someone leaves a company for a new role on the day of the payment (both companies pay on the same date monthly), there are two scenarios:

The Payment in lieu of notice (PILON) is paid with the salary from the last month from the 1st company
The Payment in lieu of notice (PILON) is paid with the first salary from the 2nd company

Does this overlap affect the taxes? I am aware that the Payment in lieu of notice does not take into account the pension contribution but it does include the NI and Tax payments. My current calculation to see how much NET someone will get from the Payment in lieu of notice is based on the daily payment. The salary from the first company is added and then from the daily gross payment the Tax and National Insurance are deducted. Lastly, that amount is multiplied with the holidays that are about to be paid (unused holidays).

Vicky · Answer

The PILON will just be paid with your normal rate of tax deducted, regardless of when it is paid.
It's possible that this won't turn out to be the correct rate if the overlap of salary pushes you into a new tax bracket for the year. In this case it will be corrected in future salary payments - HMRC just tells your employer your tax code, which tells them how much to deduct but nothing at all about why the deductions are that amount.

Taxes on Payment in lieu of notice (PILON) and salary overlap

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