PENP is calculated using HMRC's formula in section 402D ITEPA 2003 and EIM13880: ((BP × D) ÷ P) − T. BP is basic pay in the last pay period ending before the trigger date. D is calendar days in the post-employment notice period. P is calendar days in the last pay period. T is amounts already chargeable to income tax outside Chapter 3 Part 6 (usually contractual PILON already paid as earnings). If the result is negative, PENP is nil. If it exceeds the total relevant termination awards, PENP is capped at that total.
Post-Employment Notice Pay (PENP) was introduced by the Finance (No.2) Act 2017 with effect from 6 April 2018. The formula and its application are set out in section 402D ITEPA 2003 and HMRC's Employment Income Manual at EIM13880.
The formula is: PENP = ((BP × D) ÷ P) − T. BP is the employee's basic pay in the last pay period ending before the trigger date (usually the termination date). D is the number of calendar days in the post-employment notice period. P is the number of calendar days in the last pay period. T is any amount that's already chargeable to income tax outside Chapter 3 Part 6 (typically contractual PILON that has already been paid as earnings under section 62 ITEPA 2003).
BP is basic pay only. It excludes bonus and commission (unless contractually part of basic), overtime, allowances (unless contractually part of basic), and benefits in kind. Salary sacrifice is added back to BP for the calculation (per HMRC EIM13882). If pay changed during the last pay period, use the actual paid amount for that period.
D is measured in calendar days, not working days. 3 months of unworked notice typically equals ~90 days. The post-employment notice period is defined as the days between the actual termination date and the earliest date the employer could have lawfully terminated. Where the employee has a longer contractual notice than statutory, use the contractual figure.
P is calendar days in the last complete pay period ending before the trigger date. For a monthly-paid employee, that's typically 28-31 days. For weekly, 7 days. Use the actual calendar days of the specific pay period, not a standard month.
T is any amount already chargeable to income tax outside Chapter 3 Part 6. In practice, this is usually contractual PILON that has been paid as earnings, or salary paid for notice period days the employee worked. T does NOT include holiday pay (a separate earnings charge), contractual bonuses (separate earnings charge), or statutory redundancy pay (falls within relevant termination awards).
Two statutory rules apply after the formula. First, if the result is negative, PENP is nil (£0). Common when contractual PILON already covers the notice period and the T variable exceeds the (BP × D) ÷ P figure. Second, PENP cannot exceed the total relevant termination awards. Stops the PENP charge exceeding the actual payment received.
Worked example: Sarah earns £3,500 gross monthly. She's made redundant with 3 months (90 days) of unworked notice and no contractual PILON. BP = £3,500, D = 90, P = 30, T = £0. PENP = ((3,500 × 90) ÷ 30) − 0 = £10,500. Sarah pays income tax and employee NI on the £10,500 as earnings.
General information about UK employment law. For your specific situation, contact ACAS or an employment-law solicitor.