EIM13880 - Post-employment notice pay (PENP) formula
Section 402D ITEPA 2003
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) (see EIM13876)
- relevant termination awards subject to section 403 ITEPA 2003 (see EIM13878)
Post-employment notice pay is calculated using the PENP formula, set out in section 402D ITEPA 2003. The PENP formula is:
((BP × D) ÷ P) − T
‘BP’ is the employee’s basic pay in respect of the last pay period of the employment ending before the trigger date (see EIM13882).
‘D’ is the number of calendar days in the post-employment notice period (see EIM13890).
‘P’ is the number of calendar days in the employee’s last pay period (see EIM13886).
‘T’ is any payment, or benefit received in connection with the termination of a person’s employment, which is chargeable to income tax apart from in Chapter 3 Part 6 of ITEPA 2003. There are some important exceptions to what is included within the amount of ‘T’. (see EIM13896).
If the amount given by the formula is negative then take the amount of post-employment notice pay to be nil.
If the amount given by the formula exceeds the total amount of the relevant termination awards then post-employment notice pay is capped at the total amount of the relevant termination awards.
For a worked example of this formula, see EIM14000.