Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

PAYE Manual

Coding: coding: general principles: coding objections

An individual who does not agree with a notice of coding may object to the code stating the grounds of the objection. This can be done at any time during the year. Normally, you will be able to reach agreement, and if necessary, amend the code. However, if agreement cannot be reached the individual may appeal.

More information about appeals is in the Employment Income (EIM) Manual at EIM71420 onwards.

The remainder of this subject is presented as follows


Take particular care if an individual objects to your treatment of age-related allowances.

If you need to review the total income ask the individual for an estimate of all their individual sources of taxable income and update income, allowances, benefits and deductions. Ask to be told at once if the facts change. Explain that otherwise tax payments may be wrong and if the allowance is too high there may be more tax to pay after the year is over.

Amend the code if necessary.


Unless you have later information, assume past allowances will still be due. However, only give a fresh allowance when the facts are clear. For example, only give the Married Couple’s allowance after the date of marriage or registration of the civil partnership.

Cases which must be reported to Head Office first

Before you list any case for appeal hearing consider whether you need to report it to Head Office.

Report to Personal Tax Customer, Product & Process (PTCPP), PAYE Technical, Shipley any appeal you cannot settle locally that concerns

  • An underpayment coded out. There is some guidance about these under ‘Underpayments coded out’ below
  • A point of law important enough to affect other cases

Make sure that you set out the facts in any report to Head Office, which must go through your Manager.

Coding appeal: decision final

If the customer disagrees with the decision of the tribunal on their appeal against a coding notice, they may appeal to the Upper Tribunal, provided the tribunal gives permission and the tribunal’s decision is wrong in law. For further information see ARTG8020. However, this does not stop HMRC issuing a Revenue assessment after the end of the year including different figures. This means that the same point could be argued twice.

It is for this reason that we consider it best practice to take technical points on an appeal against a Revenue assessment, rather than a coding adjustment. This enables either party to pursue the case further through the courts, as well as avoiding duplication of work.

Disputed items

As a general rule, while an appeal remains open, leave disputed items in the coding unchanged. However, ‘Underpayments coded in’ below shows the occasions when you can make changes. Follow that advice if you have such a case.


Remember that coding is provisional, so you will only have the final facts after the coding year ends. The individual may question any estimate you use. Often you can accept what the individual suggests, especially if there is not much difference in the net result.

Figures not understood

You may prevent this type of appeal if you try to clear up any doubts and explain the figures, before you amend the code.

Amend the code and leave out any amount in dispute if

  • Deductions will start before you can explain the figures


  • The appeal seems fair

Flat rate expenses (FRE)

If the current year (CY) tax code includes a flat rate expense allowance, the system

  • Carries forward the same allowance if it is unchanged


  • Enters the new agreed allowance for the following year

If the individual appeals against the FRE coded on the grounds that it does not agree with the list at EIM32712, correct the tax code using the facts given.

If the individual appeals against the FRE coded on the grounds that they wish to claim the actual costs of the expenses incurred, follow the general ‘Expenses’ guidance at PAYE12045.

Hardship claim

The individual may claim that the extra deductions you propose will cause hardship. If this happens

  • Consider the facts given, and if necessary ask for rough figures of income and outgoings
  • If you agree that there is hardship, reduce the amount of underpayment coded in and amend the code

See PAYE12070 for information about the number of years to collect the underpayment over; the maximum number of years is three. Use these points as a guide

  • Coding in £100 or less should not normally cause hardship. However, use your judgement in exceptional circumstances, for example if the individual has a lot of extra expenses in one year
  • With larger amounts code in at least one third of the estimated tax payable for the year on all sources of income subject to PAYE
  • Follow this rule in broad terms and round small balances so that you spread the total as simply as you can

If you have any doubts about a hardship claim, ask an Inspector to review the papers. If you are still unable to settle the case report all the facts to PTCPP, PAYE Technical, Shipley. If you propose to reduce the amount coded, do so before submitting the papers.

Higher rate individuals

A higher rate individual may feel that the codes you propose will give the wrong result. When this happens take the following action

  • Look again at the codes and how you have allocated rates of tax. Use the individual’s estimates of pay
  • If the individual objects remove any non-PAYE income for example untaxed interest, taxed income adjustment, property income or other income from a trade profession or vocation by entering the income details in the non coded income entry field on the income, allowances, benefits and deductions earnings page, for more information refer to PAYE130035. In these cases an SA record will be required to collect the tax due
  • If necessary, change a secondary source code or amend a primary source coding adjustment. If you make a higher rate adjustment in the primary source code note Contact History. Record the name of the secondary source involved. This will help you in the end of year work item review
  • If agreement cannot be reached on how to spread the rates of tax, ask an Inspector to review the case

Jobseeker’s Allowance claimants

If an individual claims that any part of the benefit is not taxable, ask the individual the type and amount of benefit received. The Employment Income (EIM) Manual at EIM76100 onwards gives details of which benefits are taxable.

K codes

The main purpose of K codes is to collect tax on benefits in kind or state benefits. The individual can object to a K code if it has been created by non-PAYE income or by an underpayment. If this is the case

  • Take the non-PAYE income out of the code by entering the income details in the non coded income entry field on the income, allowances, benefits and deductions earnings page, for more information refer to PAYE130035. In these cases an SA record will be required to collect the tax due
  • Refer to PAYE90000 onwards to see if the underpayment can be spread over a number of years or paid direct to the Debt Management office

Report of appeal

If an individual requests a review or appeals to the Tribunal, see ‘Appeals Review and Tribunal Guidance’ (ARTG) for what to do. You may need to send the papers out of the office. If you do, attach a report, this will help any colleague who reviews the case.

Rate of pay reduced

If you find that the rate of pay has fallen, your estimates will be wrong. You can accept the individual’s estimates - record the new estimate in income, allowances, benefits and deductions and trigger a tax code calculation.

Scottish rate of income tax

From 6 April 2016 the Scottish rate of income tax will apply where an individual is resident in the United Kingdom (UK) for tax purposes and who has their sole or main place of residence in Scotland for more of the tax year than in another part of the UK. The Scottish taxpayer status applies for a whole tax year and it is not possible to be a Scottish taxpayer for part of a tax year.

The Scottish Rate of Income Tax is the amount of income tax Scottish taxpayers will pay on their non-savings and non-dividend income. Savings and dividend income is still taxed using the UK tax rates regardless of the individual’s status.

The tax code will include an S prefix to indicate they are liable at the Scottish income tax rates.

Further information is given at PAYE100035

The individual may contact HMRC to advise that the tax code is wrong and they are liable at the UK or Scottish Income Tax rates.

Where this happens you must

  • make sure the address is up to date; or
  • The address Start Date is correct; or
  • SMPR (Scottish Main Place of Residence) Start Date and/or End Dates are correct; or
  • Any missing periods of Scottish residency is updated.

Where the individual complains and objects to being taxed at the UK or Scottish income tax rates because of their main residential address. These cases should be referred to PT CPP Policy & Technical for further investigation.

Underpayments coded out

An individual may appeal against the amount of an underpayment in the coding. You may find four types of case.

The individual

  • Does not understand the figures
  • Considers that you should only enter an amount equal to the normal PAYE bill
  • Claims that the extra deductions will cause hardship
  • Tells you of a permanent change in the rate of pay after deductions start. The new figures show that little or no tax is due

More information is given about each type of case under the separate headings in this subject.

Underpayment more than normal tax bill

The individual may tell you that his or her normal PAYE tax bill will be less than the underpayment. If so they may ask only to pay tax arrears through coding up to that amount. In these cases you must change the coding.

At Annual Coding the system includes all the uncleared underpayment to be coded. It cannot consider the level of tax due on the estimated PAYE income. You will have to decide whether to spread the total over more than one year’s coding, see PAYE98020 about how to spread an underpayment.

If so, set the Manual Code indicator with the reason underpayment collection in the Maintain Individual area.

High Income Child Benefit Charge (HICBC) calculation is incorrect

The individual may contact HMRC to advise that the calculated charge is incorrect. The HICBC is calculated using the ‘Start’ and ‘End’ dates of the children within the household. See PAYE14015 about how the charge is calculated.