EIM13894 - PENP formula: how to calculate ‘D’: limited-term contracts

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, ‘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’.

Where an employee’s employment contract is a ‘limited-term contract’ and does not include a requirement for notice to be given by either the employee, or the employer before the employment is terminated then the ‘post-employment notice period’ is the period beginning at the end of the last day of employment and ending with the day of the occurrence of the ‘limiting event’ (see example 3 at EIM13892).

EIM13890 explains how to calculate ‘D’ where the employment contract is not a ‘limited-term contract’.

EIM13898 provides the definitions of ‘limited-term contract’ and ‘limiting event’.