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HMRC internal manual

Employment Income Manual

Relevant termination awards: post-employment notice pay (PENP)

With effect from 6 April 2018, some termination payments and benefits are chargeable to income tax as general earnings and do not benefit from the £30,000 threshold available in section 403 ITEPA 2003.

EIM13874 defines the term ‘relevant termination awards’ and explains that relevant termination awards are split into 2 elements:

  • post-employment notice pay (PENP)
  • relevant termination awards subject to section 403 ITEPA 2003 (see EIM13878)

Post-employment notice pay (PENP) represents payments in lieu of notice (PILON), which are not otherwise chargeable to income tax as earnings under section 62 ITEPA 2003. Post-employment notice pay is chargeable to income tax as general earnings and does not benefit from the £30,000 threshold in section 403 ITEPA 2003.

An amount of PENP arises in circumstances where an employee receives no notice, or less notice than they are contractually, or statutorily entitled to, upon termination of their employment. It represents the amount of basic pay the employee would have received had they worked the period of notice they were entitled to.

The amount of post-employment notice pay is calculated using the PENP formula. An employer is required to calculate the amount of PENP using this formula whether or not the employee, or former employee receives a contractual, or non-contractual PILON (see the example at EIM14000).

The PENP formula is set out in the legislation at section 402D ITEPA 2003 (see EIM13880). Guidance on the application of this formula is available at EIM13880 to EIM13896.