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HMRC internal manual

PAYE Manual

Coding: coding: general principles: starter rate individuals

From 6 April 2018 where a Scottish individual is liable to tax at starter rates there are special rules about the coding. The precise rules to follow depend on how many PAYE sources the individual has.

Further information on Scottish tax is given at PAYE100035.

The remainder of this subject is presented as follows source:

  • Items for which an adjustment is required in the code
  • More than one coded: allocating rates

Items for which an adjustment is required in the code

Where the individual is liable at the starter rate, the system will calculate the coding adjustment from the details included on the income, allowances, benefits and deductions area. The adjustment will be different for Scottish and non-Scottish taxpayers if the Scottish rates are different to the UK rates.

The P202 chart gives more information about coding adjustments.

More than one coded source: allocating rates

Where the individual is liable at the starter rate you may have to spread the tax rates over two or more PAYE sources. The general rule is that the primary source will utilise the tax allowances and tax rates first. If the marginal rate of the primary source is the starter rate the secondary source will be coded S0T which will be seen from Annual Coding for 2018-19. This tells the employer to deduct tax on the secondary source starting with the lowest rate band and moving through the higher rate bands.

There are two notable exceptions to this rule

  • The first is where the individual has asked you to use the rates in a specific way. Here you should issue codes that comply with the individual’s wishes
  • The second is where you should use code BR or D prefix. You may see cases where, on the primary source income alone, the individual is liable
  • At the basic rate


  • It is the secondary source income that takes the individual into the higher rate bands.

In other words there is a balance of the starter rate left over from the primary source income.

  • If you simply code the secondary source S0T, then the individual will pay too much tax

The system will calculate the Adjustment to Tax Rate Bands (ARB) restriction automatically based on the following

  • Work out the amount of the starter rate used at the primary source and the amount used at the second source.
  • Add the two figures together and take off the amount of income allowed at the starter rate.
  • If the figure is zero or a negative amount, no ARB is required
  • It the amount is positive it is multiplied by 100 and divided by the rate of liability at the main source to obtain the ARB restriction

Note: Where an ARB restriction is required, the Tax Code Calculation will only include the estimated pay for ‘live’, ‘potentially ceased’ (P Ceased) employments.

Calculation Example

Calculate total tax due in accordance with the tax tables by adding total Employment pay less Allowances, Reliefs and Deductions, not including Adjustment to Tax Rate Bands restriction (A)

Calculate tax due in accordance with the tax tables at each coded source and add them together (B)

Take B away from A to arrive at C.

Multiply C by 100 and divide by the rate of liability at the main source (the starter rate) to arrive at D. D is the of the Adjustment to Tax Rate Bands restriction to be entered in the code

Example - 2018-19

Tax due if tax due on the earnings from all sources are assessed together = £610 (A)

Tax due if each source is assessed separately = £598.50 (B)

Difference = £11.50 (C)

Rate of liability at main source = 19 per cent

Calculation is £11.50 (C) x 100 / 19 = £61 (D) - where the Primary liability is at starter rate