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HMRC internal manual

PAYE Manual

Coding: codes: how they are used and calculated: special codes for secondary sources

Sometimes a primary source pay or pension figure is less than the allowances due or the individual has requested that allowances are used at the secondary source. If the individual has a secondary source, the allowances can then be used there.

In these cases, if you give suffix L to the primary source code, the individual will not gain from a standard increase in that code. We can however, use these special rules

  • Allocate the appropriate suffix L to the secondary source at which you have given the transferred allowances
  • Use the suffix T at the primary and at any other sources. In this way, the individual will receive the benefit of any increase in the main allowances, as soon as the code is increased by the standard amount

Care is needed if, as the primary source record, you have allocated a code suffix L or Y to the secondary source. Remember, these codes will be increased automatically to include any budget changes.

If you want to allocate the ‘L’ suffix to a secondary employment then follow this order

  • Allocate the allowances to the secondary employment
  • Amend the suffix of the primary employment to suffix ‘T’
  • Amend the suffix of the secondary employment to ‘L’
  • Select the ‘Recalculate’ option
  • Consider the basis of operation for each source and make any relevant changes

Note: You cannot allocate more allowances than are available at the primary source.

A primary employment and a secondary employment can be swapped over so that the allowances are given at the source which is beneficial to the individual. For example, an individual has a primary occupational pension and a secondary employment source. The individual requests that all their allowances are given to the secondary employment source.

Using the Employment Summary screen access the Employment details screen for the primary occupational pension and change the Employment type ‘Primary’ to ‘Secondary’ using the drop down. [Save] the change and complete Contact History with details of the change made.

Using the Employment Summary screen access the Employment details screen for the secondary employment and change the Employment type ‘Secondary’ to ‘Primary’ using the drop down. [Save] the change and complete Contact History with details of the change made.

Issue a tax code calculation (PAYE11120) and consider the basis of operation of the new tax code, the tax codes may need to be operated on a week1 / month1 basis depending on the previous tax code operated at each source.

Multiple secondary employments

The PAYE Service will automatically calculate any unused allowances and allocate them in the correct order to each secondary source at the following times

  • (1) Annual coding - At this time the distribution of the allowances will be re-calculated for all secondary employments held using the logical order as detailed below
  • (2) In-year - When a new secondary employment is created through a batch process

The allowances allocated will be based on the estimated pay calculated (see PAYE13090). This process will allocate the allowances due at each source for the whole tax year. The allowances will only be subsequently re-calculated automatically by the PAYE Service when new employment / occupational pension records are set up. The PAYE Service will issue a revised P2 / P6 where the tax code has changed.

The PAYE Service will calculate the surplus allowances (net coded allowances - estimated pay) for the primary employment / occupational pension and then use the following order to establish how to allocate the surplus allowances

  • Occupational pension with largest estimated pay
  • Next largest occupational pension
  • Employment source with largest estimated pay
  • Next largest employment source
  • Earliest occupational pension with no estimated pay
  • Earliest employment with no estimated pay

The PAYE Service will allocate allowances to cover the estimated pay at each successive secondary source, reducing down the allowances available as they are set against each successive estimated pay.

If the final secondary source with estimated pay does not use up all of the remaining surplus allowances the balance of unused allowances will be returned to the primary employment / occupational pension.

Scottish Starter Rate

If the primary source falls within the starter rate the secondary source is coded at S0T. In these cases an ARB (additional rate band) is calculated if needed.