Post-Employment Notice Pay. The portion of a UK termination payment that HMRC treats as chargeable to income tax as general earnings, not benefiting from the £30,000 threshold. Introduced 6 April 2018 by section 402D ITEPA 2003.

What is the PENP formula?

((BP × D) ÷ P) − T. Where BP is basic pay in the last pay period, D is calendar days in the post-employment notice period, P is calendar days in the last pay period, T is amounts already chargeable as earnings. Documented in HMRC EIM13880.

No. PENP is chargeable to income tax as general earnings under section 402D and does not benefit from the £30,000 threshold in section 403. Only the genuine termination-award portion (statutory redundancy + qualifying ex gratia) benefits from the £30k.

How do I calculate PENP?

Use the formula ((BP × D) ÷ P) − T, or the PENP calculator on this site which implements HMRC's formula from EIM13880 exactly, including the negative-to-nil and total-termination-awards cap rules.

PENP Explained UK (2026): Post-Employment Notice Pay Guide

Why this matters right now

PENP touches almost every UK termination payment made since April 2018 - employers must apply the formula whether or not a PILON clause exists in the contract. Anyone receiving a redundancy or settlement package should understand what PENP is doing to their net figure before signing.

Why PENP exists

Before 6 April 2018, the tax treatment of PILON depended on whether the payment was contractual:

Contractual PILON: chargeable to income tax as earnings under section 62 ITEPA 2003.
Non-contractual PILON (damages for breach of contract): sometimes fell within the £30,000 termination-payment exemption in section 403.

This produced a valuable tax planning route where employers deliberately avoided a PILON clause. HMRC closed the loophole with the Finance (No.2) Act 2017. Section 402D ITEPA 2003 introduced the PENP formula, which catches any part of a termination payment that represents unworked notice - regardless of contract wording.

The HMRC formula (EIM13880)

PENP = ((BP × D) ÷ P) − T

BP - basic pay in the last pay period ending before the trigger date.
D - calendar days in the post-employment notice period.
P - calendar days in the last pay period.
T - amounts already chargeable to income tax outside Chapter 3 Part 6 (usually contractual PILON already paid as earnings).

Two statutory rules apply after the formula:

If the result is negative → PENP is nil (£0).
If the result exceeds the total relevant termination awards → PENP is capped at that total.

Worked example: monthly-paid employee

Sarah earns £3,500 gross basic monthly. She's made redundant with 3 months (90 days) of unworked notice. No contractual PILON.

BP = £3,500
D = 90 days
P = 30 days (a normal month)
T = £0 (no contractual PILON)

PENP = ((3,500 × 90) ÷ 30) − 0 = £10,500.

Sarah pays income tax and employee National Insurance on the £10,500 as if it were ordinary earnings. If her total termination package is £40,000, £10,500 falls under PENP (taxable), leaving £29,500 potentially eligible for the £30,000 s.403 exemption. Use the PENP calculator to model your figures.

Worked example: weekly-paid employee

Ben earns £520 gross basic weekly. Made redundant with 4 weeks unworked notice.

BP = £520
D = 28 days
P = 7 days
T = £0

PENP = ((520 × 28) ÷ 7) − 0 = £2,080.

Worked example: with contractual PILON already paid

James earns £5,000 monthly and has a contractual PILON clause paying 3 months (£15,000) at exit. He also receives a £20,000 ex gratia payment. Total package: £35,000.

BP = £5,000
D = 90 days
P = 30 days
T = £15,000 (contractual PILON already paid as earnings)

PENP = ((5,000 × 90) ÷ 30) − 15,000 = 15,000 − 15,000 = £0.

Because the contractual PILON already covers the unworked notice, PENP is nil. The £15,000 contractual PILON is taxable as earnings anyway. The £20,000 ex gratia falls within the £30,000 s.403 exemption. Net income tax charge on the ex gratia: £0.

What counts as basic pay (BP)

BP is basic pay only - the regular contractual salary. It excludes:

Bonus and commission (unless contractually part of basic).
Overtime.
Allowances (unless contractually part of basic).
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.

What counts as the post-employment notice period (D)

D is the calendar days between the actual termination date and the earliest date the employer could have lawfully terminated. Examples:

Employee resigns and works no notice: D = the full contractual notice period.
Employer terminates with 2 weeks notice on a 3-month contract: D = 12 weeks minus 2 weeks = 10 weeks.
Contract has no PILON clause and employer pays instead of requiring work: D = the full contractual notice period.

D is measured in calendar days, not working days. 3 months typically = ~90 days. See HMRC EIM13890 for edge cases.

What counts as amounts already taxed (T)

T is any amount that's already chargeable to income tax outside Chapter 3 Part 6. In practice:

Contractual PILON paid as earnings under section 62 ITEPA 2003.
Salary paid for the notice period where the employee works some of it.
Damages for breach of contract that are chargeable as earnings.

T does NOT include:

Accrued holiday pay (a separate earnings charge).
Contractual bonuses (separate earnings charge).
Statutory redundancy pay.
Genuine ex gratia payments (these are the "relevant termination awards" that fall within the £30,000 exemption after PENP is taken).

The two statutory rules

Rule 1 - Negative result → nil. If the formula produces a negative number, PENP is nil. Common cause: contractual PILON already covers the notice period so the T variable exceeds the (BP × D) ÷ P amount.

Rule 2 - Cap at total termination awards. PENP cannot exceed the total relevant termination awards. Stops the PENP charge exceeding the actual payment received.

Interaction with £30,000 threshold

The £30,000 threshold (section 403 ITEPA 2003) applies only to the "relevant termination awards" portion of a termination payment - which excludes PENP. Order of operations:

Calculate PENP under section 402D.
PENP is chargeable to income tax as general earnings (fully taxable, no threshold).
The remaining termination payment (statutory redundancy + qualifying ex gratia + other relevant termination awards) can use the £30,000 threshold.
Amounts above £30,000 are taxable as earnings.

See the £30,000 tax-free redundancy allowance explained for the full detail.

Employer National Insurance

Employer Class 1A NI is due on any relevant termination award above £30,000 (introduced April 2020). PENP itself attracts Class 1 employer NI as general earnings. Both charges land on the employer, not the employee - but they matter for negotiation because they raise the total cost of the package to the employer and thus the negotiation ceiling.

Common pitfalls

Using working days instead of calendar days for D or P. Use calendar days per HMRC EIM13890.
Confusing statutory notice with contractual notice for D. Use the longer of the two per contract law - which is what the employer could have lawfully required.
Forgetting T where a contractual PILON has been paid. Not applying T inflates PENP artificially.
Missing the "negative → nil" rule and reporting a negative PENP.
Missing the cap rule and reporting PENP above the total termination package.

Useful calculators

Related guides

Authority pages

Frequently asked questions

What is PENP?: Post-Employment Notice Pay. The portion of a UK termination payment that HMRC treats as chargeable to income tax as general earnings, not benefiting from the £30,000 threshold. Introduced 6 April 2018 by section 402D ITEPA 2003.
What is the PENP formula?: ((BP × D) ÷ P) − T. Where BP is basic pay in the last pay period, D is calendar days in the post-employment notice period, P is calendar days in the last pay period, T is amounts already chargeable as earnings. Documented in HMRC EIM13880.
Does PENP apply if I have contractual PILON?: Yes - employers must apply the formula regardless of contract wording. If contractual PILON already covers the unworked notice (via the 'T' variable), the net PENP figure is usually nil for that portion.
Is PENP tax-free?: No. PENP is chargeable to income tax as general earnings under section 402D and does not benefit from the £30,000 threshold in section 403. Only the genuine termination-award portion (statutory redundancy + qualifying ex gratia) benefits from the £30k.
How do I calculate PENP?: Use the formula ((BP × D) ÷ P) − T, or the PENP calculator on this site which implements HMRC's formula from EIM13880 exactly, including the negative-to-nil and total-termination-awards cap rules.

Sources and further reading

HMRC EIM13880 - PENP formula — HMRC's definitive statement of the PENP formula.
HMRC EIM13876 - PENP charge to tax — PENP chargeable as general earnings; no £30,000 threshold.
Section 402D ITEPA 2003 — Statutory basis for the PENP formula.
Section 403 ITEPA 2003 — The £30,000 termination-payment threshold.
HMRC EIM14000 - Worked example — HMRC's worked example.

This is a general guide to UK PENP based on HMRC EIM13880 and section 402D ITEPA 2003. It is not tax advice. For your specific package, contact HMRC, a qualified tax adviser or an employment-law solicitor.