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HMRC internal manual

PAYE Manual

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HM Revenue & Customs
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Coding: codes: how they are used and calculated: codes for special cases

By using the normal tax codes, those made up of a number and a suffix, we can collect the correct amount of tax from the majority of individuals. However, these codes do not work for all individuals. There are a number of special codes you can use to ensure these individuals are covered by the coding system.

Below is a brief guide to these codes.

Code 0T

Includes the prefix number 0 followed by the letter T. There is no suffix. The code charges tax through the rate bands at basic rate, higher rate and the additional rate depending on the individual’s earnings.

Code 0T can be used

  • Where no allowances indicator is set
    Or
  • Personal allowance has been tapered to 0

Tax code 0T is also for

  • New employees who have failed to tick any form P46 / Starter information statements A, B or C

Where 0T week 1 / month 1 is set as the override tax code, it should not be manually changed unless full income details for all employment sources are known.

Note: Where 0T or 0T week 1 / month 1 is prefixed with a letter S, e.g. S0T. This indicates that the individual’s sole or main place of residence is in Scotland and pay tax at the Scottish rate of income tax.

Code BR

There is no number or suffix. The employer deducts tax at basic rate from all the payments. This gives no allowances and ignores higher rates.

Use code BR

  • Mainly for secondary sources
    But also
  • For new employees whose pay is over £1 per week (or £4 per month)
    And
  • Have ticked form P46 / Starter information statement C

Note: If the code has prefix S, tax is deducted at the Scottish rate for Scottish taxpayers at basic rate.

Code D0

Includes the prefix letter D followed by the single number ‘0’. There is no suffix. The code charges the full taxable pay at the first higher rate. For example, for 2011-2012 on total pay of £5,000 an employer using code D0 will deduct £2,000 tax (that is £5,000 at 40 per cent).

If the S prefix is included, tax is deducted at the Scottish rate for Scottish taxpayers at higher rate.

From 6 April 2010, code D0 can be issued on a cumulative basis and on a week 1 / month 1 basis.

The instructions to the employer for operating Code D0 are

Tax Code D0 With week 1 / month 1
   
  * Use taxable pay tables D. Do not make any refunds
  Without week 1 / month 1
  * Refunds can be made. You must work out the tax to deduct or refund, by using the totals of all your employee’s pay and tax since 6 April

When to use code D0

Use Code D0 when tax is due at higher rate and all the allowances are fully given elsewhere.

Notes:

  1. The basis of operation that the PAYE Service will default to for code D0/SD0 will be week 1 / month 1.

  2. Where D0 or D0 week 1 / month 1 is prefixed with a letter S, tax code SD0. This indicates that the individual’s sole or main place of residence is in Scotland and pay tax at the Scottish rate of income tax.

Code D1

Includes the prefix letter D followed by a single ‘1’. There is no suffix. The code charges the full taxable pay at the second higher rate. For example, 2011-12, on total pay of £5,000 an employer using D1 will deduct £2,500 tax (that is £5,000 at 50 per cent).

If the S prefix is included, tax is deducted at theScottish rate for Scottish taxpayers at additional rate.

Code D1 can be issued on a cumulative and on a week 1 / month 1 basis.

Note: The basis of operation that the PAYE Service will default to for code D1 will be week 1 / month 1.

Code NT

The letter N means ‘no tax’. The letter T is a suffix. The employer deducts no tax from the pay at this source.

From April 2012 an NT code reason must be recorded on the record before the code can be issued (see Action guide tax40002) and where appropriate enter an effective start date within Employment Summary, PAYE64040 refers.

Code NT can be issued on a cumulative basis and on a week 1 / month 1 basis.

The instructions to the employer for operating Code NT are

Tax Code NT With week 1 / month 1
   
  * Do not deduct tax after you receive this form. Keep a record of your employee’s pay. Do not make any refunds
  Without week 1 / month 1
  * Refunds can be made. You must work out the tax to deduct or refund by using the totals of all your employee’s pay and tax since 6 April

When to use code NT

Use code NT only in cases clearly within the list available in PAYE11010.

Note: The basis of operation that the PAYE Service will default to for code NT will be week 1 / month 1.

The ‘S’ prefix indicating the individual pays tax at the Scottish Rate(s) does not apply to Code NT cases. The Code NT is used for all residents of the UK regardless of where they live.

Emergency Code

The emergency tax code is a number followed by suffix L. The number is the Personal allowance without the final figure for example the emergency code for 2016-2017 is 1100L. The emergency code can be used on a cumulative or non cumulative basis (week 1 or month 1).

The employer uses the emergency code

  • For new employees whose pay is above the PAYE threshold
    And

    • Who produce no form P45 when they start in the job
      And
    • Who declare on from P46 / Starter information that the job is their only or main job
  • For employees for whom the employer has received no code notice
  • In certain special cases, for example, when a P45 produced after 24 May is for the preceding year

The same emergency code is used for everyone in the UK regardless of their residency status.

K Code

Includes the prefix letter K followed by a number in the range 1 to 9999. There is no suffix. Instead of deducting free pay, the employer uses Tax Tables A to calculate an additional amount. This is added to the employee’s pay each pay day to arrive at the taxable pay. The tax deducted on any one day cannot exceed 50 per cent of the gross pay for that period. The employer will collect any shortfall on a later pay day if possible.

A K code is generated automatically by the system when coding deductions are more than the allowances.

Note: Where a K code is prefixed with a letter S, e.g. SK99. This indicates that the individual’s sole or main place of residence is in Scotland and pay tax at the Scottish rate of income tax.

Long tax codes

When you amend a tax code and the new tax code exceeds 5 characters (including prefixes and suffixes but excluding the S prefix) you should issue the P2 as normal using the PAYE Service and

  • Set the ‘Manual Correspondence to Employer’ indicator in the Employment Details screen
  • Use SEES to manually issue a form P6
  • Make a Contact History note that the individual’s tax code is too long to issue using the PAYE Service

The S prefix is not included because it is a tax regime not part of the tax code.

For example 1100L, S1100L, K1000 and SK1000 are all standard codes and so do not need the Manual Correspondence to Employer set. This is because without the S, all these codes have 5 characters.

S Codes

An S prefix denotes a Scottish taxpayer. This S prefix is set by the system automatically based on the residency status of the individual. The S prefix will apply where an individual is a resident in the UK for tax purposes and their sole or main place of residence is in Scotland for more of the tax year than in another part of the UK.