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HMRC internal manual

Employment Income Manual

PENP formula: how to calculate ‘P’

EIM13874 explains that, with effect from 6 April 2018, the post-employment notice pay element of all ‘relevant termination awards’ is chargeable to income tax as general earnings. Post-employment notice pay is calculated using the PENP formula (see EIM13880).

In the PENP formula, ‘P’ is the number of calendar days in the employee’s last pay period ending before the ‘trigger date’ (see Example 1 at EIM13888).

EIM13898 provides the definition of ‘trigger date’.

If there is no pay period which ends before the last day of the employment, or the day notice is given then ‘P’ is the period starting on the first day of the employment and ending with the ‘trigger date’ (see example 2 at EIM13888).

If all of the following conditions are met:

  • an employee’s last pay period (‘P’) is a month
  • the employee’s contract provides a ‘minimum notice’ period, which is expressed in whole months
  • the post-employment notice period (‘D’) is equal to the ‘minimum notice’ period, or is otherwise a whole number of months (see EIM13890 to calculate ‘D’)

then take ‘P’ to be 1 and calculate ‘D’ in months rather than days (see example 3 at EIM13888).

EIM13898 provides the definition of ‘minimum notice’.