Taxation law can be complicated, but generally income tax is deductable in the normal way from gross pay during notice, if it is paid in accordance with the contract of employment.
If payment continues as normal during the notice period, tax will be deducted as usual. Problems sometimes occur, however, where a payment in lieu of notice is made.
The question of whether tax should be deducted from these payments depends on whether there is a term in the contract permitting payment in lieu. If there is a contractual term the law requires income tax to be deducted. If there is no contractual term but the employee accepts the offer of a payment in lieu, then gross payment may be made without tax. Any question then of tax due will be subject to Inland Revenue rules. Currently the first £30,000 is payable free of tax.
