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HMRC internal manual

PAYE Manual

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HM Revenue & Customs
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Coding: coding: general principles: more than one coded source

The PAYE Service will automatically calculate the allowances at each source and allocate the appropriate tax code at the first tax code calculation of the tax year. For the majority of cases this will be annual coding. The allowances allocated will be based on the estimated pay calculated (see PAYE13090). This process will allocate the allowances due at each source for the whole tax year. The allowances will only be subsequently re-calculated automatically by the PAYE Service when new employment / occupational pension records are set up. The PAYE Service will issue a revised composite P2 and relevant P6s where the tax code(s) have changed.

The PAYE Service will calculate the surplus allowances (net coded allowances - estimated pay) for the primary employment / occupational pension and then use the following order to establish how to allocate the surplus allowances

  • Largest occupational pension
  • Next largest occupational pension
  • Secondary employment, highest estimated pay
  • Secondary employment, lesser estimated pay
  • The remaining allowances will be allocated to only one of the following

    • Occupational pension, no estimated pay, earliest start date
    • Secondary employment, no estimated pay, earliest start date

The PAYE Service will allocate allowances to cover the estimated pay at each successive secondary source, reducing down the allowances available as they are set against each successive estimated pay.

If the final secondary source with estimated pay does not use up all of the remaining surplus allowances the balance of unused allowances will be returned to the primary employment / occupational pension.

Manual reallocations

Manual reallocations will take place at the request of the customer.

From 10 December 2014 if, as the primary source record, you want to change a secondary source code you must make the changes by allocating the allowances or codes using the Employment Ordering link in the Employments Allocation Function from the Tax Code Header screen in the coding area.

To access the Employment Allocation screen

  • Perform an online Tax Code Calculation
    And
  • Select submit

The Employment Ordering screen will be populated with a list of employments which have a status of live, potentially ceased and ceased. Each employment will be identified by Employer Name, PAYE reference number, Works number, the employment type (primary or secondary) and status.

From the Employment Ordering screen you will be able to allocate allowances to the customer’s preference and the amount of allowance they wish to allocate against that source.

To allocate allowances at the customer’s request

From the Employment Allocation screen

  • Select Employment Ordering
  • Allocate allowances as preferred by the customer
  • Select submit to recalculate the allocation of allowances this will return you to the Employment Allocation screen where you will be presented with the recalculated codes
  • Review the recalculated codes
  • Select submit to accept the changes and issue the revised tax codes

Note: You should only make an unusual allocation of allowances not stated in the order above in exceptional circumstances.  Thes circumstances should only be where you have not been able to resolve a complaint or coding objection despite advising the individual that the total amount of income tax to be deducted will remain the same, regardless of the allocation of allowances.

The link to the Employment Ordering screen will only be available if there are secondary employments. If there is only a primary source the link will not appear.

Care is needed if, as the primary source record, you have allocated a code suffix L, P or Y to the secondary source. Remember, these codes will be increased automatically to include any Budget changes.

If you want to allocate the ‘L’ suffix to a secondary employment then follow this order

  • Allocate the allowances to the secondary employment
  • Amend the suffix of the primary employment to suffix ‘T’
  • Amend the suffix of the secondary employment to ‘L’
  • Select the ‘Recalculate’ option
  • Consider the basis of operation for each source and make any relevant changes

Issue a tax code calculation (PAYE11120) and consider the basis of operation of the new tax code, the tax codes may need to be operated on a week1 / month 1 basis depending on the previous tax code operated at each source.

Note: Where a primary record for incapacity benefit is to be swapped over to be a secondary source, take the following action before swapping over

  • Make a note of the employment’s estimated earnings recorded on IABD for the primary incapacity benefit source

Note: You may need to recalculate this amount as the figure could have been carried forward from a previous year or employment source (this will be used when updating IABD for the amount of incapacity benefit to be included as a deduction in the new primary source tax code).

  • Amend the primary employment incapacity benefit estimated earnings to zero
  • Using the Employment Summary screen access the Employment details screen for the primary incapacity benefit and change the Employment type ‘Primary’ to ‘Secondary’ using the drop down option. Save the change and complete Contact History with details of the change made
  • Using the Employment Summary screen access the Employment details screen for the secondary employment source and change the Employment type ‘Secondary’ to ‘Primary’ using the drop down option. Save the change and complete Contact History with details of the change made
  • Enter the amount of employment estimated earnings for the new primary record in IABD
  • Enter the amount of incapacity benefit in IABD under Taxable Social Security Benefits (noted or recalculated from the bullet above), save the change and complete Contact History with details of the change made
  • Trigger a tax code calculation and ‘Submit’ the tax code details
  • On the Edit Employment Allocation screen, enter enough allowances to cover the incapacity benefit (noted from the step above) and ‘Recalculate’
  • Issue a tax code calculation (PAYE11120) and consider the basis of operation of the new primary source tax code

Note: The tax code may need to be operated on a week 1 / month 1 basis depending on the previous tax code operated. Further guidance can be found in action guide tax40002.

  • If you are coding out incapacity benefit you should issue the DWP stencil OCCPEN held on Office Clerical Assistant (OCA) where the new primary source is an occupational pension