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HMRC internal manual

PAYE Manual

HM Revenue & Customs
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Coding: coding allowances and reliefs: allowance restriction

Certain reliefs are only given at a single rate for all and are given as a reduction in the amount of tax payable. For coding purposes the relief is given as an allowance with an accompanying deduction. This ensures the allowance is worth the same amount to each individual. In most cases the system can use the estimated pay on the record to calculate the correct amount of the restriction automatically. But there are some occasions when you will have to check the details manually.

Allowances affected

The allowances affected are

  • Married Couple’s allowance, individual born before 6 April 1935
  • Married Couple’s allowance transferred to wife and husband born between 6 April 1938 and 5 April 1948
  • Married Couple’s allowance transferred to wife and husband born before 6 April 1935
  • Wife’s Married Couple’s allowance
  • Married Couple’s allowance date of marriage on or after 5 December 2005
  • Maintenance Payments

Note: You must not use the term ‘Married Couple’s and Civil Partners 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.

Coding restriction

The allowance restriction appears as a coding deduction. The amount depends on the individual’s expected highest rate of tax. The individual’s notice of coding does not refer to the allowance restriction, the notice of coding only displays the net amount with a note that explains what the allowance is worth in terms of tax.

For example, the coding record shows that the Married Couple’s allowance is 5145 and the allowance restriction displayed is 2572.

The individual’s notice of coding will display

your personal allowance £5,035
married couple’s allowance £2,573
state pension / benefit -£10,764
tax is due on -£3,156
We turn -£3,156 into tax code K314  


How the restriction is calculated

To calculate the tax payable and the allowance restriction required, the system uses

  • Estimated pay on the record
  • Net coding allowances
  • Allowance(s) to be restricted

The allowance restriction calculated will relate directly to the amount of income details held on the record.

The calculation for cases where the Net Coding Allowance (NCA) is greater than, or equal to the estimated pay on the primary employment will remove the restriction. Where the NCA is less than the estimated pay on the primary employment, standard coding rules will apply.

When the system calculates there is a surplus of Married Couple’s allowance, form 575T will be issued unless this form has previously been issued for CY-1.

When the restriction is calculated

The system calculates the allowance restriction automatically in each of the following situations

  • Annual Coding Main Review
  • Annual Coding Supplementary Review
  • Budget Coding Main Review
  • When there is a change to the net coding allowances
  • When income details are entered or amended