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EMI Group Electronics Ltd v Coldicott (Chancery Division) 22 October 1997

Income tax. Schedule E. PILONs (Payments in Lieu of Notice).

Two employees had notice periods of six months. The contract of employment provided for PILONs to be made, saying “The Company reserves the right to make payment of the equivalent of salary in lieu of notice.” The employees became redundant and were dismissed summarily; payments in lieu of notice were made in accordance with the employment contracts.

The issue was whether such payments were emoluments from the employment (s.19 ICTA 1988) in which case they were taxable, or not, in which case they were in principle taxable under s.148 ICTA 1988 but with the benefit of the £30,000 exemption under s.188(4) ICTA 1988.

Held: in the spectrum of types of payment, contractual PILONs fall between deferred payments of salary, which are within s.19, and redundancy payments, which are not. The fact, here, that the employment contracts provide for the payments to be made is neither a sufficient nor a necessary condition for taxability under s.19, but it is relevant. These PILONs were taxable under s.19 as emoluments from the employment. Mairs v Haughey [1994] 1 AC 303 distinguished.

Michael Flesch QC and Conrad McDonnell appeared for the employer

See also Court of Appeal decision above