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HMRC internal manual

PAYE Manual

Coding: coding: general principles: estimated income

Estimated income is the adjusted net income (ANI) and is used in the calculation of age-related allowances and the High Income Child Benefit Charge (HICBC).

For more information regarding the calculation of HICBC see PAYE14015.

When calculating the age-related levels of Married Couple’s allowance NPS will calculate the individual’s adjusted net income (previously known as net statutory income.

Adjusted net income is calculated as follows

  • Stage 1 - start with Net Income (Chargeable income less deductions - for example job expenses, professional subscriptions, losses and loan interest)
  • Stage 2 - deduct gross Gift Aid
  • Stage 3 - deduct grossed up pension contributions paid under relief at source arrangements
  • Stage 4 - add back any payments for life assurance made (payments to trade unions or police organisations including life cover)

Where the adjusted net income exceeds the income limit for age-related allowances the age-related Married Couple’s allowance are gradually reduced by £1 for every £2 of income down to the minimum amount of the allowance due.

You can use the link on the Tax Code Details screen to view the Adjusted Net Income calculation to compare this with the age-related income limit.

It is not necessary to enter the estimated income figure in IABD where.

Note: When updating CY IABD with state pension details in the year of commencement, ‘actual’ NIB will be automatically included, rather than the ‘annual’ NIB figure. This will be reflected in the ANI calculated for the year and it will not be necessary to recalculate this figure.

In day to day work, if you have full income details in IABD you should

  • Allow NPS to use the total income details to establish the correct amount of age-related allowances due, as part of the tax code calculation
  • Where an estimated income figure is already held in IABD remove this by entering the figure ‘0’ in place. Deleting the figure held will not trigger a recalculation of the age-related allowances
  • Where the tax code calculation establishes that reduced age-related are not due and either full or minimum age-related allowances are due, issue any tax code changes as necessary
  • Review and update CY+1 as necessary
  • Where the tax code calculation establishes that reduced age-related allowances are due

    • [Submit] and [Save] the change and issue any necessary tax code(s)
    • Review and update CY+1 in accordance with action guide tax40002
    • In day to day work, if you don’t have full income details in IABD and an estimated income figure is held in IABD you should
  • Leave the estimated income figure in IABD, to allow NPS to use the existing figure to calculate the reduced age-related allowances
  • Issue any necessary tax code(s)