The long-awaited clarification of the Inland Revenue’s treatment of termination payments has been criticised by tax experts.
The Revenue’s position on PILONS, payments in lieu of notice, is still far from clear, they warn. PILONS are paid to dismissed employees not required to work out their notice and are equivalent to the pay that would have been earned during the notice period.
Ernst & Young senior tax manager Rob Gell said: ‘The Revenue is wrong.
It is saying if you know there will be a PILON when you’re sacked then it’s part of your normal income. ‘But you don’t think about the sack when you start a job. The Revenue ought to go back and look at the legislation.’
KPMG tax partner Leslie Farrar said the clarification contained weak reasoning and left several issues outstanding. The Revenue’s treatment of redundancy PILONS and those issued under a reserved right of discretion are of major concern.
Farrar said: ‘Some Revenue offices may be trying to tax PILONS made under a redundancy package where the contract doesn’t refer a PILON. ‘This is contrary to general principles and should be resisted. It’s a shame that the Revenue didn’t use the opportunity to confirm this.’
A Revenue spokesman said: ‘In our view, a PILON is not a payment for redundancy. It does not share the qualities which characterise such a payment, such as, the variation in amount related to service, the compensation for a stake in the employment and the distress of the employee being out of work in circumstances beyond their control.’