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).

A pay period reflects the period that the payment represents.

For example, say an employee is paid on the 15th of each month and the payment they receive on 15 March represents the period from 1 March to 31 March. The pay period is 1 March to 31 March (not, for example, 16 February to 15 March).

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).


Simplified calculation by months

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’.


Employees paid by equal monthly instalments: alternative calculation

HMRC is aware that the formula to calculate Post-employment Notice Pay may create unintended outcomes in certain circumstances.

Issues may arise where a worker’s contract creates payment periods in months, but they have a notice period in weeks or days.

From 16 October 2019, the following alternative calculation may be used in such circumstances.


  • the last pay period of the employee to end before the trigger date is a month, and

  • the employee’s salary is paid by 12 equal monthly instalments, and

  • the post-employment notice period is not a whole number of months (in which case the calculation by months should be used instead)

Then the employer may substitute 30.42 (being 365 ÷ 12) as the value of P in the PENP calculation where doing so is to the advantage of the employee.


Alternative calculation: example

An employee is paid her salary of £36,000 by equal monthly instalments of £3,000 on the first day of each month.

Her employment is terminated on the 1st of March and she is entitled to 2 weeks’ (14 days’) notice, which she does not receive.

The last pay period is 1 February to 28 February.

She receives a termination payment of £10,000, part of which will be PENP. Using the formula at section 402D(1) of ITEPA 2003:

((BP x D) / P) - T

((£3,000 × 14) ÷ 28) – 0 = £1,500

However, the conditions for the temporary alternative calculation are met, so the employer may substitute 30.42 as the value of P:

((£3,000 × 14) ÷ 30.42) – 0 = £1,380

This is to the benefit of the employee.