EIM13899 - PENP formula: internationally mobile employees

Some individuals have a working pattern which involves regularly performing duties overseas as well as in the UK. In such circumstances, some of the employee’s earnings may not be taxable in the UK if they derive from overseas duties.

When calculating post-employment notice pay (PENP), all of the employee’s workdays and earnings should be included in the calculation, and the full amount of any contractual PILON should be included within “T” even if it is not entirely taxable in the UK.

For example, consider an employee who in each 5-day working week spends 3 days in the UK and 2 days overseas. The last pay period ending before the trigger date is 28 days, and in that period the employee receives £2,800 of which £1,680 (60%) is charged to tax in the UK. The post-employment notice period is 30 days, and the employee receives a contractual PILON of £2,500 of which £1,500 is charged to tax in the UK.

The PENP calculation is as follows:

((2,800 × 30) ÷ 28) − 2,500 = 500

PENP is £500.

The employee may be entitled to Foreign Service Reduction (see EIM13980) on the £500 amount. Foreign Service Reduction is only available where the employee is non-UK resident for the tax year in which the employment terminates.

For some non-UK resident individuals there is no charge to tax on post-employment notice pay. EIM13877 explains the chargeability of post-employment notice pay for non-UK resident employees.