Redundancy pay, PILON and student loan repayments

Hi, my company were making my entire department redundant, and offered selected voluntary redundancy on better terms than we would be offered if we decided to wait it out and see if we could be offered a new job within the company.

I have taken the redundancy and will receive a contractual redundancy payment as well as a payment which they were calling Pay in lieu of notice.

I have checked my contract, and although it does state that the employer is required to give 8 weeks' notice if they want to end my employment, it does not state that they have the right to choose to pay us pay in lieu of notice instead. It does say that they can require me to take a leave of absence during my notice period and not allow me to work for other companies during that time (I think this is describing "garden leave"?), but that is not what they decided to do with me.

I am quite happy with the payments that I am receiving, but I have a question regarding tax on the PILON and whether I would have to pay student loan on this portion of my redundancy payment. At first we were told within our compromise agreement that our PILON would be subject to normal deductions. However we have now received a letter stating they do not feel that we will be subject to tax and other deductions on our PILON as there is no provision within our contract to allow the company to pay PILON instead of asking us to work our notice (so they have essentially breached the contract, and this is why they are paying a compromise agreement).

I agree with this, but after a bit of (probably slightly misguided) googling I have found info that says that even if the contract does not give the employer the right to pay PILON, HMRC may still seek to recover tax if the employer habitually does pay PILON instead of getting their employees to work their notice. In all honesty I don't know if this is something my employer tends to do or not, and therefore I don't know whether to keep money aside incase HMRC come knocking.

Does anyone have any further ideas to point me in the right direction? I've emailed my company to ask them to clarify but to be honest I doubt that they will give me a straight answer on this.

My second question is whether I will have to pay student loan repayments from my redundancy pay? I assume not with regards to my contractual redundancy pay, but the PILON part is still giving me a headache here. When I thought it was going to be subject to tax I just assumed that I would have to pay student loan payments from it, but if my employer is going to pay me gross, should I keep money aside for that too? I have to fill out a self assessment form as I have recently also become self employed, so I can't follow the advice I keep getting from dodgy people who just tell me to "not tell the tax man"!

Thanks for reading and sorry for such a long first post!

Your employers appear, from what you say, to have misundertood PILON - which may be in your favour so you might not want to mention it. Employers commonly (but not necessarily - it's a choice) pay PILON at the net and not gross rate of pay. So although it isn't taxable, they save money on the portion that would be tax and NI. In other words, the money in your pocket would be what you would have been paid normally, but the amount is paid as a tax free amount. So if they are paying gross when they don't have to....

But I am afraid the rest I can't answer, and we have nobody here who I think could. I think that you ought to either ask HMRC - they are usually pretty helpful or an accountant. And as for student loans, well they are a law unto themselves and I have no idea who to ask! But you are absolutely correct to avoid dodgy people telling you things - the tax man has a nasty habit of catching up with you.