PENP calculator (post-employment notice pay)
Work out how much of a termination payment HMRC treats as earnings - the part that can never shelter under the £30,000 exemption.
The termination
Formula from section 402D ITEPA 2003: (BP ÷ P) × D − T. A negative result is treated as nil. This is a guide, not tax advice - PENP interacts with contractual PILON clauses and salary sacrifice, and a payroll or tax adviser should confirm any figure you act on.
PENP is the slice of a termination payment that represents notice the employee did not work. It is taxed as ordinary earnings - income tax and National Insurance in full - and it cannot shelter under the £30,000 exemption. The formula in s.402D ITEPA 2003 is (BP ÷ P) × D − T. Only what remains after PENP is stripped out can be tax-free.
What do BP, D, P and T actually mean?
| Term | What it is |
|---|---|
| BP | basic pay in the last pay period ending before the trigger date |
| D | calendar days in the post-employment notice period - the notice not worked |
| P | calendar days in that last pay period (see the monthly rule below) |
| T | termination amounts already chargeable to income tax as earnings, typically a contractual PILON |
When is P 30.42, and when is it a month?
This is where most PENP calculations go wrong, so it is worth being precise.
- P = 1 month only when all of these hold: the last pay period was monthly, basic pay is paid in equal monthly instalments, the contractual minimum notice is expressed in whole months, and the notice period is the minimum or a whole number of months.
- P = 30.42 under s.402D(6A) where pay is monthly but those conditions do not all line up. The figure is the average length of a month (365 ÷ 12).
- P = actual calendar days in the last pay period in every other case - weekly, fortnightly or four-weekly payrolls.
Picking the wrong basis changes the answer by a few per cent, which on a large settlement is a real number - and it is the employer who accounts for the tax.
What counts as "basic pay"?
Less than people expect. Basic pay for PENP excludes overtime, bonus, commission, gratuities, allowances, benefits in kind and securities income. It includes amounts the employee has given up under salary sacrifice - so the pre-sacrifice figure is the one to use, not what actually hit their payslip.
- Someone on £3,000 a month sacrificing £300 into pension receives £2,700.
- For PENP, BP is £3,000 - the amount given up is added back.
- Use the payslip figure and you under-declare the taxable element.
How does PENP interact with the £30,000 exemption?
PENP comes off first. The sequence is: work out PENP, tax that as earnings with NI, and only then apply the £30,000 exemption to whatever is left. That is precisely why the rules were introduced - before them, a non-contractual PILON could be dressed up as compensation and sheltered by the exemption.
Statutory redundancy pay counts towards the £30,000 but is not itself PENP. Worked notice, holiday pay and accrued but untaken leave are ordinary earnings and sit outside this calculation altogether - the notice pay calculator and leaver holiday calculator cover those.
When do you not need to do this?
If the employee works their full notice, D is zero and so is PENP. The calculation only bites where notice is cut short - a payment in lieu, a settlement with an early exit date, or a termination with no notice at all. Costing a whole exit? The redundancy cost calculator pulls statutory pay, notice and holiday together.
HMRC's own guidance sits in the Employment Income Manual from EIM13874 onwards. It is written for tax officers rather than employers, which is part of why this calculation has a reputation it does not entirely deserve.
Frequently asked questions
How is PENP calculated?
Using the formula in section 402D ITEPA 2003: (BP divided by P) multiplied by D, minus T. BP is basic pay in the last pay period ending before the trigger date, D is the number of calendar days of notice not worked, P is the number of calendar days in that pay period, and T is any termination amount already taxable as earnings such as a contractual PILON. A negative result is treated as nil.
When is 30.42 used in the PENP calculation?
Where the last pay period was monthly and basic pay is paid monthly but the conditions for using a whole month do not all apply, section 402D(6A) requires P to be 30.42 - the average number of days in a month. P is one month only where pay is monthly and in equal instalments, the contractual minimum notice is in whole months, and the notice period is that minimum or a whole number of months.
What counts as basic pay for PENP?
Basic pay excludes overtime, bonus, commission, gratuities, allowances, benefits in kind and securities income. Importantly it includes amounts the employee has given up under salary sacrifice, so the pre-sacrifice figure is used rather than the net payslip amount.
Is PENP covered by the £30,000 exemption?
No. PENP is taxed as ordinary earnings with income tax and National Insurance in full. Only the balance of a termination payment remaining after PENP has been stripped out can benefit from the £30,000 exemption.
Do you need to calculate PENP if the employee works their notice?
No. If the full notice is worked there are no unworked notice days, so D is zero and PENP is nil. The calculation only applies where notice is cut short, such as a payment in lieu or an early exit under a settlement.
This calculator applies the statutory rules as published and shows its working, but it cannot know your contracts, your policies or anything unusual about the case. Treat the figure as a starting point, and take advice on anything contested or expensive.
The figures an exit needs, already on file
CoDash keeps salaries, notice periods, service dates and leave balances current - so a termination calculation starts from real records instead of a reconstruction.