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HMRC internal manual

Employment Income Manual

PENP formula: how to calculate ‘D’

EIM13872 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, ‘D’ is the number of calendar days in the ‘post-employment notice period’. The ‘post-employment notice period’ is the period beginning at the end of the last day of employment and ending with the ‘earliest lawful termination date’. EIM13898 provides the definition of ‘earliest lawful termination date’

If the ‘earliest lawful termination date’ is, or precedes, the last day of the employment, the number of calendar days in the ‘post-employment notice period’ is nil.

If the employment contract provides for a contractual notice period which is shorter than the minimum statutory notice required under the law then the ‘minimum notice’ for the purpose of calculating ’D’ is the length of the minimum notice required under the law.

EIM13894 explains how to calculate ‘D’ where the employment contract is a limited-term contract. EIM13898 provides the definition of ‘limited-term contract’.

Examples to support the explanation of how ‘D’ is calculated are available at EIM13892.