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HMRC internal manual

PAYE Manual

PAYE service income, allowances, benefits and deductions: IABD: deductions

The table shows the deductions and identifies whether

  • The amount is carried forward to be coded in CY+1

And if

  • You need to make a manual calculation before recording the information

PAYE11115 also gives more information about certain deductions.

Item Carried Forward Manual calculation required
Balancing Charge NO YES
Widows and Orphans Adjustment NO NO
Child Benefit YES NO
Dividend Tax YES NO

Balancing Charge

  • Enter the calculated amount of the charge
  • For more information see PAYE11115

Widows and Orphans Adjustment

Relief for Widows and Orphans payments is not available from 5 April 2013. For earlier tax years, the adjustment will be calculated automatically, see PAYE11115.

Child Benefit

  • The most recent Child Benefit amount calculated will be displayed
  • To view the CHILD SUMMARY screen, select the [drill down] button next to the Child Benefit amount. This screen will display the data which has been used to calculate the amount
  • ‘Full Year Claim’ indicates the child has been in the household for a full tax year
  • ‘Part Year Claim’ indicates the child has been in the household for part of a tax year and ‘Start’ and / or ‘End’ dates will also be displayed

Note: Where no data is held in the CHILD SUMMARY screen, this indicates that the Child Benefit amount has been manually entered.

Automatically calculated Child Benefit

The PAYE Service will automatically calculate the Child Benefit amount using the number of children and any ‘Start’ and ‘End’ dates held for each child, as follows

    1. The ‘Entitlement Start Date’ will be the Monday following the ‘Start’ date held on IABD. Where the ‘Start’ date falls on a Monday, this will be the ‘Entitlement Start Date’ used
    1. The ‘Entitlement End Date’ will be the Sunday following the ‘End’ date held on IABD. Where the ‘End’ date falls on a Sunday, this will be the ‘Entitlement End Date’ used

Note: If no ‘Start’ or ‘End’ dates are held, the assumed ‘Start’ and ‘End’ dates for the entitlement period will be the start and end date of the tax year; 06/04 and 05/04.

    1. The number of full weeks between the ‘Entitlement Start Date’ and the ‘Entitlement End Date’ will be calculated
    1. The number of full weeks calculated above will be multiplied by the rate of benefit received for the eldest or only child
    1. Where Child Benefit is received for additional children, bullets 1 to 4 will be repeated, with the rate of benefit received for each subsequent child used at bullet 4
    1. The amount calculated at bullet 4 for each child will be added together

The total Child Benefit amount calculated above, according to the rate of benefit received and period of entitlement for each child will be recorded in IABD. The Child Benefit amount will be used to calculate the HICBC, see PAYE14015.

Dividend Tax

From April 2016, the Dividend Tax Credit will be abolished and a new £5,000 Tax Free Allowance for Dividend income will be introduced.
The new rates of tax on Dividend income above the allowance will be –:

 - 7.5% for dividends taxed in the Basic Rate
 - 32.5% for dividends taxed in the Higher Rate
 - 38.1% for dividends taxed in the Additional Rate

An allowance will be introduced so that everyone can receive up to £5,000 of Dividend income, on top of any dividends received on shares held in an ISA. If an individual earns less than £5,000 of Dividend they will not pay any tax.

Note: Dividend Tax reform is in addition to and outside of ISA allowances. Also, Dividend Tax is unaffected by the Scottish Rate of Income Tax and will be applied at the same rate for all taxpayers across the UK.

With the introduction of Dividend Tax from April 2016, HMRC will make provision for those taxpayers who continue to be liable for tax on Dividend income, adjusting tax codes for PAYE customers including PAYE-SA customers choosing to pay this way.

Dividend income will be displayed in IABD as a gross amount in UK Dividends.

A new NPS IABD entry for the value of the Dividend Allowance used will be created for calculation of the allowance and any tax liability. This will be displayed in the Total Liability Calculation screen as ‘Dividend Allowance’, up to a maximum £5,000. Where UK Dividends are below the limit, the Dividend Allowance amount included for annual coding will be displayed as the actual amount of Dividend income, up to a maximum £5,000.

Where UK Dividends are equal to or less than the allowance, no P2 will be generated. Only where UK Dividends exceed the allowance will a P2 be issued to the customer with a note.

As part of the introduction of the Dividend Allowance, amounts from 2015-16 net values (the amounts actually received) will be carried forward into 2016-17 gross values for UK Dividends.

Customers may contact HMRC to change the amount of UK Dividends because they believe it is incorrect. In challenging customers, users should advise them to check their records and if necessary their Bank or Building Society and that if we later find they have incorrectly declared the Dividend income, we may take action to collect any tax due.

Where the customer confirms that they have the correct UK Dividend amount, accept revised figures and update IABD.

To update UK Dividends in NPS IABD,  PAYE130010 and action guide ‘IABD – change in financial circumstances’ explain how to do this
Every time information is recorded and submitted, the system will automatically look at the changes made to a record and determine if

  •  A coding calculation is required
  •  In year calculation is required
  •  Or
  •  End of year calculation is required

You must complete Contact History when prompted to do so by the system.