Is PILON taxable?

Yes. Payment in lieu of notice (PILON) is always taxed as employment income — subject to PAYE and National Insurance. It does not qualify for the £30,000 termination payment exemption.

Since April 2018

All PILON is taxable regardless of whether your contract includes a PILON clause. HMRC may also apply Post-Employment Notice Pay (PENP) rules to part of a severance payment if you did not work your notice.

PILON vs redundancy pay

PILON compensates you for notice you did not work — it is earnings you would have received anyway. Statutory redundancy is compensation for losing your job and may qualify for the £30,000 exemption.

Universal Credit

PILON is treated as earnings for Universal Credit if received in an assessment period after you claim — not as capital. Only qualifying termination payments count towards the capital rules.

Related guides

• Does PILON affect Universal Credit?
• Is redundancy pay taxable?
• How much will I actually take home?
• Earnings or capital for UC?

Model PILON in your exit package

Source: GOV.UK termination payments; HMRC EIM13874. Checked September 2026.