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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).

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    Payment in lieu of notice is paid only by the company you are leaving, and then when they let you go without the proper advance notice. Whatever the company you are going to is paying you it should have a different name.
    – DJClayworth
    Jun 6, 2021 at 22:42
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    If someone who actually worked at HMRC was on this stackexchange they'd have 10k rep in no time 🙂
    – marktristan
    Jun 7, 2021 at 8:29

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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.

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  • That is what I thought. But how can someone track the correction of the rate in future salary payments?
    – Datacrawler
    Jun 7, 2021 at 11:37
  • What do you mean "how can someone track it"? You don't need to track it, HMRC will automatically update your tax code accordingly and inform your employer. They will also send you a coding notice if they do this so you will be given the relevant information.
    – Vicky
    Jun 7, 2021 at 11:47
  • I think I must not be understanding what your concern / question actually is. What are you worried about or trying to figure out?
    – Vicky
    Jun 7, 2021 at 11:48
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    Are you starting the new job before the notional notice period expires, so you'll end up getting paid twice for the same days, once by your old employer and once by your new employer? If so you'll get taxed on it at your "marginal rate" of tax. I'd try using a take-home calculator for your normal pay, and for your normal pay + PILON added, and then subtract the two figures to get a rough net payment for your PILON.
    – GS - Apologise to Monica ♦
    Jun 7, 2021 at 12:14
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    @Datacrawler you'll get a more accurate calculation by working out the gross pay for the time you are owed, and then using a salary calculator to work out what the net pay should be (as I described in an earlier comment). Also, is this payment actually for untaken holiday rather than an part unworked notice period? It doesn't make any difference to the payment but it is a bit misleading to call it PILON then.
    – GS - Apologise to Monica ♦
    Jun 7, 2021 at 18:08

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