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HMRC internal manual

PAYE Manual

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HM Revenue & Customs
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PAYE service income, allowances, benefits and deductions: IABD: foreign income

Before entering any amount of foreign income which is non-PAYE income into IABD, you must first follow the guidance at PAYE12060.

All cases where an individual receives foreign income need to be set up in SA. The only exception to this rule is where the foreign income received is foreign dividend and the gross amount of foreign dividend per tax year is less than £300.

Foreign dividend income

Note: From 6 April 2016 the Scottish rate of income tax only applies to non-savings and non-dividend income. All savings and dividend income is still taxed using the UK tax rates.

Further information is given at PAYE100035

For PAYE only cases, foreign dividend income should only be entered in the IABD investment income screen where it is a non-SA case. The form R40 asks for the amount of foreign income received.

You should first consider if the case needs to go into SA before you update the IABD screens.

Basic rate individuals

If the foreign income received is foreign dividend income and the individual is liable to tax at the basic rate then enter the gross amount of foreign dividend (where the gross foreign dividend income is less than £300) in the net UK Dividend field. Where there is a UK Dividend payable as well, add the net UK Dividend to the gross foreign dividend and click calculate.

Higher rate and additional rate individuals

If the foreign income received is foreign dividend income and the individual is liable to tax at the higher rate and / or additional rate then enter the gross amount of foreign dividend (where the gross foreign dividend income is less than £300) in the Foreign Dividend field and the foreign tax credit in the Foreign Tax Credit field.

Note: Foreign dividend income will be carried forward to the CY+1 tax code. In higher rate and / or additional rate cases the PAYE Service will calculate the ‘other income’ (not earned) coding deduction.

Where an individual’s gross foreign dividend income is £300 or more, no entry should be made in the UK Dividend field or the Foreign Dividend field. The gross foreign dividend should be entered as Non-coded Income on the Earnings screen. These cases should all be SA cases.

PAYE / SA cases (linked to an SA record)

For PAYE / SA cases, foreign income should no longer be included in the individual’s tax code. You should remove any coding deductions for foreign income even if the latest SA return reflects that the individual is content to have non-PAYE income coded out.

All foreign income should be included as part of the Non Coded Income on the Earnings screen, see PAYE130035.

The amount entered will be used by the PAYE Service when making the total income calculation for coding purposes only. It will not be taken into account in the end of year reconciliation, as these will be SA cases.

Note: In complaint cases or when the individual / agent insists, foreign income may continue to be coded out. You must ensure that the ‘manual code’ indicator is set and a clear Contact History note is made. The case will have to be manually coded each year from the latest SA tax return as the ‘manual code’ indicator will cancel SA auto-coding.

Foreign pension allowance

Foreign Pension Allowance will be calculated on the relevant foreign pension when the individual’s SA tax return is captured. The individual will no longer receive this allowance through their tax code.

Note: In complaint cases or when the individual / agent insists, foreign pension allowance can continue to be included in the tax code. See PAYE130025.

All other foreign income

Any case identified with other types of foreign income not covered above, should be set up in SA. SA tax returns should be issued to the individual along with the foreign income supplementary page and help notes.