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Posted Thu, 19 Oct 2023 17:44:48 GMT by
Hi. I've recently left my company after agreeing a settlement agreement which included a ex gratia termination payment in addition to payment in lieu of notice and holiday pay. On the PILON and holiday pay I've paid full tax as I expected but my company have also deducted full tax and insurance from the additional payment. My understanding is that the first £30k of that should be tax free but they claim that only applies to redundancy payments. Who is correct?
Posted Tue, 24 Oct 2023 16:00:20 GMT by HMRC Admin 8
When you’re leaving a job, whatever payments the company makes to you are called “Termination Payments” by HMRC, regardless of whether they are redundancy payments, compensation for unfair dismissal, pay in lieu of notice (commonly abbreviated to PILON), holiday pay, or simply any wages owed.
 As long as the payment is made because your employment is being terminated, for whatever reason, then the tax laws covering Termination Payments will apply:
Tax on termination payments
Whether you are entitled to the first £30000 tax free, will depend on how the settlement agreement is made up.
Thank you.

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