UK redundancy guide · reviewed 23 September 2026
PILON and redundancy pay: what gets taxed?
PILON often sits next to redundancy pay in the same letter, but it is not the same kind of money. Treating the two as one lump is where many package estimates go sideways.
PILON is pay for the notice period you are not working. It is normally taxed and subject to National Insurance as earnings. Qualifying redundancy or severance pay can instead fall within the separate £30,000 termination-payment allowance.
What PILON actually is
Payment in lieu of notice means your employment ends without you working some or all of your notice period, and you are paid instead.
Your contract may already provide for PILON, or it may be agreed when your employment ends. Either way, the tax rules treat notice pay differently from genuine redundancy compensation.
- PILON is usually subject to Income Tax and employee National Insurance.
- It should not simply be added to the tax-free redundancy amount.
- Your statutory and contractual notice periods can be different, so check the contract and redundancy letter.
PILON versus garden leave
With garden leave you normally remain employed and on payroll during your notice period, even if you are told not to work. With PILON, the employment can end immediately and the notice pay is paid as money instead.
Both are fundamentally notice-period earnings rather than tax-free compensation for losing the job.
Why this matters when comparing offers
Two packages with the same gross headline can have very different take-home values if one contains more taxable notice pay and the other contains more qualifying redundancy or severance pay.
Model each component separately before comparing offers or deciding how much runway the package buys.
Turn the package into a number you can use
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