What PENP is and why it exists
Post-Employment Notice Pay is the portion of a UK termination payment that HMRC treats as taxable earnings rather than as a termination payment. It was introduced by the Finance (No.2) Act 2017 with effect from 6 April 2018, primarily to close the historical loophole where non-contractual PILON could sometimes fall within the £30,000 tax-free termination allowance.
Since April 2018, employers must apply the PENP formula to every relevant termination payment regardless of whether a PILON clause exists in the contract. Where the formula produces a PENP figure above zero, that amount is chargeable to income tax as general earnings under section 402D ITEPA 2003 and does NOT benefit from the £30,000 threshold in section 403.
The HMRC formula in plain English
PENP = ((BP × D) ÷ P) − T
- BP is your 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 — the days between the actual termination date and the earliest date the employer could have lawfully terminated.
- P is the number of calendar days in that last pay period (28-31 for monthly, 7 for weekly).
- 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.
The two statutory rules
- Negative result → nil. If the formula gives a negative amount, PENP is nil. This usually happens when the ‘T’ component (already-taxed amounts) exceeds the notice period’s pay-based figure.
- Cap at total termination awards. If the formula result exceeds the total relevant termination awards, PENP is capped at that total. This stops the PENP charge exceeding the actual payment received.
Both rules are documented in HMRC’s EIM13880 and implemented directly in this calculator.
Worked example: monthly-paid employee
Sarah earns £3,500 per month gross basic pay. She’s made redundant with 3 months (90 days) of unworked notice. There is no contractual PILON clause.
- BP = £3,500 (last month’s pay)
- D = 90 (three months of calendar days)
- P = 30 (the last calendar 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, only £29,500 (£40,000 − PENP £10,500) is available to fall within the £30,000 s.403 exemption.
Worked example: weekly-paid employee
Ben earns £520 per week gross basic pay. He’s made redundant with 4 weeks unworked notice.
- BP = £520
- D = 28 (four weeks of calendar days)
- P = 7 (the last calendar week)
- T = £0
PENP = ((520 × 28) ÷ 7) − 0 = £2,080
Related calculators and guides
- UK PILON calculator — for the PILON (Payment in Lieu of Notice) itself.
- Settlement agreement tax calculator — splits a whole settlement package into taxable and tax-free elements.
- PENP explained — the standalone plain-English guide.
- PENP vs PILON — direct comparison for settlement letters that use both terms.
- The £30,000 tax-free redundancy allowance explained
- PILON tax — the full tax context including employer NI and pension routing.
Frequently asked questions
- What is PENP?
- Post-Employment Notice Pay. It's 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 by the Finance (No.2) Act 2017 with effect from 6 April 2018 to close the historical loophole around non-contractual PILON. Set out in section 402D ITEPA 2003.
- How is PENP calculated?
- ((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 that pay period. T = amounts already chargeable to income tax outside Chapter 3 Part 6 (e.g. contractual PILON already paid as earnings). If the result is negative, PENP is nil. If the result exceeds the total relevant termination awards, PENP is capped at that total.
- Does PENP apply to contractual PILON?
- The formula is calculated whether PILON is contractual or not. For contractual PILON already paid as earnings, the amount usually appears in the 'T' variable, so the net PENP figure is usually nil for that portion. For non-contractual PILON, PENP is what makes the payment fully taxable as earnings.
- Does the £30,000 tax-free threshold apply to PENP?
- No. PENP is chargeable to income tax as general earnings under section 402D ITEPA 2003 and does not benefit from the £30,000 threshold in section 403. Only the genuine termination-award portion (statutory redundancy plus qualifying ex gratia) benefits from the £30,000 exemption.
- Is this calculator accurate?
- The calculator implements HMRC's formula in section 402D ITEPA 2003 exactly as documented in EIM13880. It applies both statutory rules (negative → nil; cap at total termination awards). It's an estimate — for your specific package, check with your payroll department or a qualified tax adviser.
Sources and further reading
- HMRC EIM13880 - Post-employment notice pay (PENP) formula — The official HMRC formula, exactly as implemented here.
- HMRC EIM13876 - PENP charge to tax — The rule that PENP is charged as general earnings.
- Income Tax (Earnings and Pensions) Act 2003, section 402D — The primary statutory basis for the PENP formula.
- Income Tax (Earnings and Pensions) Act 2003, section 403 — The £30,000 termination-payment threshold.
- HMRC EIM14000 - Worked example — HMRC's worked example of the PENP formula.
This calculator returns an estimate of your Post-Employment Notice Pay based on HMRC’s formula in EIM13880 and section 402D ITEPA 2003. It is not tax advice. For your specific package, check with your payroll department, a qualified tax adviser, or an employment-law solicitor.