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HMRC internal manual

PAYE Manual

Coding: coding deductions and expenses: benefits in kind

Include Benefits in Kind in the code whenever you can. If they arise from a secondary source, record the benefits in kind against that employment on income, allowances, benefits and deductions. The benefits in kind will be included in the tax code for the primary employment source.

Describe different benefits as follows

  • Car benefit
  • Car fuel benefits
  • Beneficial loan
  • Medical insurance
  • Telephone
  • Van
  • Van fuel benefit
  • Any other as Benefits in Kind

When a new benefit is coded out for the first time, the usual procedure is to code out the actual amount for that part year, thus creating a potential underpayment (PUP) for collection in the following year.

From 2 July 2017 we no longer calculate Potential Underpayments (PUPs) in tax codes.  We now refer to the extra tax due in CY as an In-Year Adjustment (IYA) and the coding restriction to collect this amount will be described as In-Year Adjustment Restriction (IYAR).

The In Year Calculator (IYC) will work out the In Year Adjustment (IYA) and convert this into an In Year Adjustment Restriction (IYAR) to collect the right tax due over the remaining weeks/months of the tax year.   

If we are unable to collect the whole IYA in the current year, for example in cases where the collection of the IYA doubles liability or the 50% Regulatory limit is reached, the remaining balance of the IYA is carried forward and collected in CY+1.

Further information about the PAYE changes being introduced to from 2 July 2017 is given at PAYE11100

Enter details of benefits in kind in the income, allowances, benefits and deductions area and submit the code calculation to calculate the code.

Cars, car fuel and form P46(CAR)

During the year, employers may use form P46(CAR) to make returns of car or car fuel benefits.

Any in-year changes to Car / Fuel benefit from a P46(Car) should be processed on ECS. ECS will update NPS IABD CY and CY+1 as necessary and auto code the benefit as appropriate, see PAYE130040.

Leavers

It is important to maintain codes even if the record is a leaver case, to ensure continuity if a new employment commences. It is likely that any new employment would involve similar circumstances as the old employment. The automated coding process will therefore amend the code to reflect the P46(CAR) details and a P2 will be issued to the individual so that they are aware of the change.

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Interest free or cheap loans

Make any necessary coding calculation following your review of the individual’s form P11D for the previous year. The Employment Income (EIM) Manual at EIM26100 onwards tells you how to calculate the benefit.

Sometimes an employer will tell you about the benefit before the end of the tax year, and may have used a more precise basis to work it out. However, this may not give the correct final result. When this happens

  • Remind the employer to use the average basis when completing the P11D
  • Tell the employee

    • The benefit in the coding may not be final
    • You will review it after 5 April

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Coding benefits on form P11D that are subject to an expenses claim

When you are coding benefits from a P11D with a section 336 expenses claim, see PAYE130040.

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Receipt of form P9D

Examine any completed P9D without delay and capture the details in IABD see PAYE130040.

  • Consider any item shown from which the employer could not deduct tax
  • Review the assessable benefit and where the amount is

    • £50 or less - code out any benefit which is likely to continue. Use Week 1 basis if needed
    • Over £50 - take the benefit into account in the assessing review. Revise the coding as needed

Note:  2015-16 is the last tax year the P9D will be used.