Is my notice pay taxable?

Any payment made by your employer under your contract of employment will be taxable as earnings. This includes any pay received during the notice period and any notice pay received as a lump sum, known as a payment in lieu of notice (PILON), but only if your written contract allows your employer to make a lump sum payment in lieu of notice.

Where your contract of employment does not allow your employer to end the contract immediately by making a lump sum payment instead of making you work your notice, ending the contract immediately will technically be a breach of contract. In these circumstances, the lump sum payment will be a payment of damages for that contract breach and you may be entitled to take the payment free of tax up to a limit of £30,000. Any question then of tax due will be subject to HM Revenue and Customs rules.

The government is consulting on possible changes to the tax treatment of termination payments, but any changes are not expected to become law until around April 2018.

Tax law is complicated and you should ask for professional advice.

Note: This content is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a source on our free help page or an independent financial advisor before taking any action.