EIM13843 - Redundancy payments and 'compensatory notice pay' made by Redundancy Payments Offices (RPOs) of the Department for Business, Energy and Industrial Strategy (BEIS)
Customary Notice Pay (CNP) is only paid if an employee has not received payment for their statutory notice and their former employer is insolvent. CNP was previously not taxable as earnings because it was considered to be damages rather than a contractual payment. Previous guidance can be found at EIM13842.
From 6 April 2018 CNP became taxable with the introduction of Post-Employment Notice Pay (PENP). if an individual is owed notice pay then PENP treats the first part of their termination payment as earnings, based on a formula.
The formula is of little importance in the context of CNP, since the amount paid under the Employment Rights Act will always be less than the result of the PENP formula and therefore the full amount should always be taxable. But guidance on how to calculate PENP is found at EIM13874 onwards.