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Section 402E ITEPA 2003

EIM13874 explains that, with effect from 6 April 2018, the post-employment notice pay element of all 鈥榬elevant termination awards鈥� is chargeable to income tax as general earnings. Post-employment notice pay is calculated using the PENP formula (see EIM13880).

There are various terms which require defining to calculate 鈥楤P鈥�, 鈥楶鈥� and 鈥楧鈥� for the purposes of the PENP formula. These terms are defined below.

鈥楾rigger date鈥�

If the termination is a 鈥榥otice case鈥� then the trigger date is the day notice is given.

If the termination is not a 鈥榥otice case鈥� then the trigger date is the last day of the employment.

The term 鈥榯rigger date鈥� is required for calculating 鈥楤P鈥� (see EIM13882), 鈥楶鈥� (see EIM13886) and 鈥楧鈥� (see EIM13890).

鈥楴otice case鈥�

If the either the employer, or employee gives notice to the other to terminate the employment then the termination is a 鈥榥otice case鈥�. In a notice case it does not matter whether the notice given by either party is more, or less than, or the same as the 鈥榤inimum notice鈥� period. It also does not matter if the employment ends before the notice expires.

The term 鈥榥otice case鈥� is required for calculating 鈥楤P鈥� (see EIM13882), 鈥楶鈥� (see EIM13886) and 鈥楧鈥� (see EIM13890).

鈥楳inimum notice鈥�

The 鈥榤inimum notice鈥� is the notice required to be given by the employer to terminate the employee鈥檚 employment, by giving notice, in accordance with the law and contractual terms.

If the termination is a 鈥榥otice case鈥�, the 鈥榤inimum notice鈥� is the minimum notice required to be given by the employer to terminate the employee鈥檚 employment by notice in accordance with the law and contractual terms that were effective immediately before notice is given.

If the termination is not a 鈥榥otice case鈥�, the 鈥榤inimum notice鈥� is the minimum notice required to be given by the employer to terminate the employee鈥檚 employment by notice in accordance with the law and contractual terms that were effective immediately before the employment ends, or where the employment ends by agreement entered into after the start of the employment, immediately before the agreement is entered into.

The term 鈥榤inimum notice鈥� is required for calculating 鈥楤P鈥� (see EIM13882), 鈥楶鈥� (see EIM13886) and 鈥楧鈥� (see EIM13890).

鈥楶ost-employment notice period鈥�

The 鈥榩ost-employment notice period鈥� is the period beginning at the end of the last day of employment and ending with the 鈥榚arliest lawful termination date鈥�.

The term 鈥榩ost-employment notice period鈥� is required for calculating 鈥楧鈥� (see EIM13890).

鈥楾he earliest lawful termination date鈥�

The earliest lawful termination date is the last day of the period which is equal in length to the 鈥榤inimum notice鈥� and begins at the end of the 鈥榯rigger date鈥�.

The term 鈥榚arliest lawful termination date鈥� is required for calculating 鈥楧鈥� (see EIM13890).

鈥楲imited-term contract鈥� and 鈥榣imiting event鈥�

The terms 鈥榣imited-term contract鈥� and 鈥榣imiting event鈥� are defined in sections 235(2A) and (2B) of the Employment Rights Act 1996. These sections are reproduced below:

鈥淪ection 235(2A) For the purposes of this Act a contract of employment is a 鈥渓imited-term contract鈥� if鈥�

(a) the employment under the contract is not intended to be permanent, and

(b) provision is accordingly made in the contract for it to terminate by virtue of a limiting event.

(2B) In this Act, 鈥渓imiting event鈥�, in relation to a contract of employment means鈥�

(a) in the case of a contract for a fixed-term, the expiry of the term,

(b) in the case of a contract made in contemplation of the performance of a specific task, the performance of the task, and

(c) in the case of a contract which provides for its termination on the occurrence of an event (or the failure of an event to occur), the occurrence of the event (or the failure of the event to occur).鈥�

There may be circumstances where it is not possible to ascertain the date of the 鈥榣imiting event鈥� because for example the 鈥榣imiting event鈥� is the completion of the performance of a specific task, which is not ascertainable before the termination payment is received. In those circumstances, take the date of the 鈥榣imiting event鈥� to be what would be the last day of employment had the employee been given the minimum statutory notice they would have been entitled to under section 86 of the Employment Rights Act 1996.

The terms 鈥榣imited-term contract鈥� and 鈥榣imiting event鈥� are required for calculating 鈥楧鈥� (see EIM13890).