Is it possible that my employer has pocketed my tax and NI contributions?

[BlueLittleLady]

Hi,

 

I have recently been (unfairly) dismissed and among many issues in regards to this employer, I have one issue, which I am not quite sure how to deal with.

 

The contract states “if the company does not provide you with any work during the notice period, you will not be entitled to access any premises of the Company but you shall continue to receive your full remuneration and other benefits there under.

 

Instead of crediting my bank account as usual, the company sent me a cheque for the week’s notice payment based on the Net Pay – an amount that would be correct if they had deducted tax and NI contribution. However, as this payment is not included on my payslips or the P45, I am left to suspect that the company pocketed the taxable portion and paid me the Net Pay equivalent.

 

In hope to clarify this situation I wrote many emails and they replied to all of them but without being clear as to why the sum is based on the Net Pay. When I have asked them to provide me with details on how much exactly they have deducted for tax or NI contributions, they’ve simply ignored that part of the question. The company’s latest explanation is as follows:

 

“The Company has paid you that sum equivalent to the net value of one week's wages as damages for you not being permitted to work out your notice period, this is not subject to tax and national insurance.”

 

It seems that no matter what way I approach the question they deliberately do not tell me the details of why this is based on the Net Pay. Neither have they given me holiday pay that was accumulated for the week.

 

Anyone has any advice on this?

 

I thank you in advance for any help or advice you can give me.

[BankFodder]

I think that you should report it to the DWP immediately.

 

Also, have you included this in your tribunal claim?

[BlueLittleLady]

Hi, and thank you for your quick reply!

 

I haven’t filed a tribunal claim, because I am not sure I have grounds to do so – I’ve never been in a situation like this before, so this is all very new for me.

 

I have spoken to Acas regarding the issue. Acas representative took the contact details of the company’s HR and I was told by Acas that they’ll make enquiries and get back to me in a few days. So let’s see what happens on that front.

 

Based on your response, I am assuming this is not a normal thing then?

 

As per your reply, I will also drop an email to DWP.

 

- - -

 

I have a few other questions as well, but I recon I should make separate posts for separate issues.

[BlueLittleLady]

- Just had a look at DWP website and I am not sure this is the right organisation to contact, as they deal with jobseekers, benefits, pensions, disability support, child support and benefit fraud... Can't find a relevant area relating to tax or NI.

[citizenB]

“The Company has paid you that sum equivalent to the net value of one week's wages as damages for you not being permitted to work out your notice period, this is not subject to tax and national insurance.”

 

 

 

If this is correct and they have indeed paid you "damages" then surely that would be excluded from any statutory deductions !

[Sidewinder]

If this is correct and they have indeed paid you "damages" then surely that would be excluded from any statutory deductions !

 

Absolutely! In most cases, unless specifically mentioned in the contract, PILON paid as 'damages' for not permitting you to work your notice period would be paid gross, not net.

[Nystagmite]

I think that you should report it to the DWP immediately.

 

Also, have you included this in your tribunal claim?

 

Would it be HMRC and not DWP? As HMRC deal with tax and BI stuff.

[Jon D]

I would not be worried for the following reasons:

 

1. Under PAYE regime, this is a company liability (essentially the company are telling you bog off in their affairs) - no recourse to you

2. Yes they would pay you net. They would also pay you this outside of the payroll run (so to close the matter swiftly rather than waiting for he next payroll.

3. But most importantly, they have paid you gross as a PILON, which is tax free. If any subsequent investigations say that PILON not correct and it should be taxable, HMRC would go for reimbursement from the company.

 

Therefore I would not worry.

[Gbarbm]

There are different types of PILONs

If it is customary to pay it so that there is an expectation on the part of the employee that they will receive a payment then it will be liable to tax and NI

If it is mentioned in a contract then it will be liable to tax Nd NI

If it comes out of the blue and is unexpected then it is not taxable.

If you google S401 ITEPA (income tax, earnings and pension act) 2003 you will see the situations when a PILON may be taxable or non taxable

[BlueLittleLady]

Hi everyone,

 

First of all I would like to thank you all for your responses.

 

@citizenB At this point I am really confused as to why am I getting paid ‘damages’. Is this different than one weeks notice payment? And if this is my 1 weeks notice payment and the employer simply chooses to refer to it as ‘damages’, then it should still be gross, not net. (I have specifically asked them whether they have deducted tax of it or NI, they have not given a straight answer to date).

 

@Sidewinder My contract has absolutely no mention of PILON or payments as ‘damages’. I had a second look at the employee handbook, and that again has no mention of either.

 

My contract only states “…your employment may be terminated by one week’s notice by either party, without reference to the Company’s disciplinary procedures.”

 

And the only other relevant part is “If the company does not provide you with any work during such period you will not be entitled to access any premises of the Company, but you shall continue to receive your full remuneration and other benefits hereunder.”

 

This makes me understand that the weeks notice payment should be in full (gross), unless they have deducted tax - a question the employer keeps avoiding. And although this does not translate to a substantial amount, the employer has also ignored the holiday entitlement for this week.

 

@Jon D The didn’t have to wait for the next payroll. I did one week’s work in a new month, then I was dismissed. The employer could have very easily ran that through payroll for the same month. And they haven’t paid me gross (as per your point 3), they paid me net and they refuse to comment as to why they have paid me net amount and not gross.

 

@Gbarbm Well, indeed, I have expected to get the 1-weeks notice payment with full holiday entitlement, which in my understanding this is supposed to be. According to your post, in this case, it should be liable to tax and NI.

 

If I would’ve been paid the one weeks notice, lets say via Payroll, and this cheque landed in addition and out of the blue, then it would have been unexpected. But unfortunately, while the employer defines the payment as ‘damages’, it really seems that this is the one-week’s notice payment.

 

Can you really blame me for getting confused?? LOL

[Sidewinder]

The 'damages' aspect is that your contract (and statute) allow you to work a period of notice - that is a right, and if the employer does not require you to work that notice, then they are breaching contract, for which you would be entitled to sue and receive damages for losses incurred. In making a payment 'in lieu' of notice, this represents the damages that would have been awarded had you taken such action, therefore PILON is to all intents and purposes a payment of damages for not allowing you to work notice.

 

The tax position is dictated by the opinion of HMRC. Damages would normally be free from tax and other deductions, but HMRC say that where a contract makes a provision for PILON, then this is a contractual arrangement and that tax and NI should be deducted as the contractual arrangement makes this 'wages' rather than 'damages'. Re-reading your posts, I fear that the statement “If the company does not provide you with any work during such period you will not be entitled to access any premises of the Company, but you shall continue to receive your full remuneration and other benefits hereunder.” represents a contractual PILON arrangement and therefore a taxable payment.

 

Definitely confusing, and worthy of an explanation. If the employer cannot or will not do so, then contact HMRC and ask them to take up the matter of why the payment does not tally with your P45 or payslips.