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HMRC internal manual

PAYE Manual

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HM Revenue & Customs
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Coding: coding allowances and reliefs: age-related allowances

From 6 April 1999 the rate of relief for Married Couple’s age-related allowances is due at 10 per cent and from 2000-01 onwards Married Couple’s allowance is only due if at least one spouse was born before 6 April 1935. On or after 5 December 2005 Married Couples and Civil Partners can claim the Married Couple’s allowance if at least one spouse or civil partner was born before 6 April 1935.

Note: You must not use the term ‘Married Couple’s and Civil Partner’s allowance’ in correspondence or when you are speaking to an individual or their agent. You must always refer to the ‘Married Couple’s allowance’ when you are dealing with individuals and their agents.

From 6 April 2013 the availability of the age-related rates of Personal Allowance was restricted to individuals who were born before 6 April 1948. Additionally, the budget announcement in March 2012 advised that these allowances would remain frozen at the 2012-13 rates. This will enable these allowances to be effectively phased out, due to increases to the basic Personal Allowance each tax year.

The remainder of this subject is presented as follows

The system helps you with some parts of this work. To calculate the age-related allowance(s) due the system needs to know

  • The relevant date(s) of birth - (individual’s date of birth and spouse’s / civil partner’s date of birth

And

  • The adjusted net Income (ANI) for the coding year

Adjusted net income (ANI)

When calculating the age-related levels of Personal Allowance and Married Couple’s allowance the system will calculate the individual’s adjusted net income (previously known as net statutory income).

Adjusted net income is calculated as follows

  • Stage 1 - start with Net Income (Chargeable income less deductions - for example job expenses, professional subscriptions, losses and loan interest)
  • Stage 2 - deduct gross Gift Aid
  • Stage 3 - deduct grossed up pension contributions paid under relief at source arrangements
  • Stage 4 - add back any payments for life assurance made (payments to trade unions or police organisations including life cover)

Where the adjusted net income exceeds the income limit for age-related allowances the age-related Personal Allowance and Married Couple’s allowance are gradually reduced by £1 for every £2 of income down to the minimum amount of the allowance due.

You can use the link on the Tax Code Details screen to view the Adjusted Net Income calculation to compare this with the age-related income limit.

The correct age-related allowance description will be used and the amount of reduced age-related allowances will be calculated automatically in most cases when

  • Estimated income is entered or amended and the date of birth or spouse’s / civil partner’s date of birth for an individual born on or before 5 April 1948 is already on the record

Or

  • The date of birth or spouse’s / civil partner’s date of birth for an individual born on or before 5 April 1948 is entered and estimated income is already on the record

Or

  • Both the estimated income and the date of birth or spouse’s / civil partner’s date of birth for an individual born on or before 5 April 1948 are entered at the same time, or are already on the record

Note: To enable NPS to automatically calculate the age-related allowances due, a P161 must be noted as received.

Cases may arise where an individual is entitled to receive the Married Couple’s allowance by virtue of their spouse or civil partner’s date of birth, but does not qualify for age-related personal allowances, due to their own date of birth. Where a younger spouse receives a reduced amount of Married Couple’s allowance as a result of the level of their income, if the case is not appropriate to SA, you must ensure the ‘Inhibit Automatic Reconciliation’ signal is set, see PAYE93015.

This is to ensure the reconciliation can be manually calculated. NPS will not automatically calculate any reduction to the Married Couple’s allowance in these cases when the tax year is reconciled.

Estimated income

From 28 October 2015 it is not necessary to enter the estimated income figure in IABD.

Note: When updating CY IABD with state pension details in the year of commencement, ‘actual’ NIB will be automatically included, rather than the ‘annual’ NIB figure. This will be reflected in the ANI calculated for the year and it will not be necessary to recalculate this figure.

In day to day work, if you have full income details in IABD you should

  • Allow NPS to use the total income details to establish the correct amount of age-related allowances due, as part of the tax code calculation
  • Where an estimated income figure is already held in IABD remove this by entering the figure ‘0’ in place. Deleting the figure held will not trigger a recalculation of the age-related allowances
    • [Submit] and [Save] the change and issue any necessary tax code(s)

In day to day work, if you don’t have full income details in IABD and an estimated income figure is held in IABD you should

  • Leave the estimated income figure in IABD, to allow NPS to use the existing figure to calculate the reduced age-related allowances
  • Issue any necessary tax code(s)

Year of marriage

If the total income during the year of marriage exceeds the statutory limit for full age-related allowances, the allowance may be restricted in two ways, as the Married Couple’s allowance is reduced by 1 twelfth for each complete tax month before the date of marriage or civil partnership. See PAYE13110.