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HMRC internal manual

PAYE Manual

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HM Revenue & Customs
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Coding: coding: general principles: SA automatic coding from tax return

General

Individuals in Self Assessment with tax returns SA100 and SA200 and with a PAYE source will have their tax code automatically calculated following the capture of return information on Computerised Environment for Self Assessment (CESA). If the Self Assessment is marked ‘Deceased’ no information will be passed from CESA.

On receipt and capture of tax returns for CY-1, the return information will be sent from CESA through an interface to the PAYE Service resulting in a tax code calculation and the issue of a notice of coding (P2) to the individual and a coding notification (P6 / P9) to the employer.

The P2 will include the explanation ‘Your tax code has changed because of information in your Tax Return’. A Contact History note will be made with details of the issue of the P2 and P6 / P9.

Tax return information will be sent from CESA to the PAYE Service on a daily basis. If a tax return is amended more than once on the same day then only the information from the latest amendment on that date will be passed to the PAYE Service.

In the period 6 April CCYY until Annual Coding, information from CESA will populate CY in IABD and automatically issue a CY tax code. In the period that Annual Coding finalises a CY+1 tax code, CESA will populate CY and CY+1 in IABD and automatically issue a CY tax code.

National Insurance and PAYE Service (NPS) will use the trace and match functionality (PAYE120005) to match up the return information to the correct individual’s record on NPS. When no matching record is found then work item 420 ‘SA Auto Coding - No trace individual’ is generated. Refer to PAYE120055 for more information about work item 420. The action guide is at PAYE120056.

Where a record is matched the return information will be stored in the relevant area of income, allowances, benefits and deductions (IABD) and a tax code calculation will be generated. Where a tax code has been generated the code type will be set to SA Autocoding to identify that the return information has automatically been used to calculate the tax code.

Where a tax code cannot be calculated a work item will be generated.

SA cases and annual coding

The PAYE Service has been enhanced for SA cases at annual coding, see PAYE13005 for further guidance.

Return information

The CESA return information will be stored in IABD where gross, net and taxed values are present. The return information will be stored in the IABD area for the following coding items

  • Flat rate expenses, gift aid payments and job expenses (PAYE130050)
  • Death, sickness and funeral benefits, loan interest, personal pension payments, professional subscriptions and retirement annuity payments (PAYE130025)
  • UK dividends, bank / building society interest and untaxed interest (PAYE130060)
  • Income from property (PAYE130070)
  • Commission, non coded income, tips, other earnings and other income (not earned) (PAYE130035)

Where the PAYE record is updated with return information and no work item is generated a tax code calculation for CY or CY and CY+1 will be triggered automatically.

During any tax code calculation prompted by receipt of CESA information

  • The value to be used to populate IABD will be the value supplied by CESA

And

  • The existing value for any IABD item used in the current tax code for which a value is not received from CESA will remain as is and continue to be part of the tax code calculation

Where auto-coding sends a zero value for an item then

  • If the existing IABD value is zero the value from auto-coding will not be stored
  • If the existing IABD value is not zero the auto-coding value will overwrite the existing value and will be used in future tax code calculations

Note: Where IABD carries forward an amount of zero PSUBs from CY to CY+1 the zero amount will not be output on the P2 Notice of Coding.

Where any item has been manually changed by an operator since the annual coding process that set up the CY / CY+1 code now being considered

  • The auto-coding value will not overwrite that clerical entry. The auto-coding value would still update any entries which have not been manually changed since annual coding

Where a PAYE record is updated, but it is too late to issue or operate a revised code for CY then only the CY+1 code will be updated with the information from the SA Tax Return.

Blind Person’s relief

If Blind Person’s relief (BPR) is claimed on the return this information will be stored on IABD. If the current IABD record does not contain an amount for BPR the standard amount of BPR will be stored in IABD and used in the tax code calculation.

If the current IABD record does contain an amount for BPR then there will be no change to the BPR amount already stored in IABD (PAYE130025).

Married Couple’s allowance

If Married Couple’s allowance (MCA) is claimed on the return this information will be stored on IABD. If the current IABD record does contain an amount for MCA then there will be no change to the MCA amount already stored in IABD (PAYE130025).

If the current IABD record does not contain an amount of MCA work item 421 ‘SA Auto Coding - Married Couple’s Allowance Discrepancy’ will be generated.

If MCA is not claimed on the return but the IABD record does contain an MCA amount work item 421 ‘SA Auto Coding - Married Couple’s Allowance Discrepancy’ will be generated.

The instructions for work item 421 are in SDP WI421.

High Income Child Benefit Charge

If the number of children and Child Benefit received at 5 April is completed on the tax return, this information will be stored on IABD and used to calculate the correct Child Benefit charge to be included in the individual’s tax code as follows

  • Where Child Benefit amount received is greater than ‘zero’, this amount will be used, otherwise ‘zero’ will be sent
  • Where the number of children at 5 April is greater than ‘zero’, this amount will be used, otherwise ‘zero’ will be sent
  • If the individual indicates they do not want the Child Benefit charge to be included in their tax code, both amounts will be sent as ‘zero’

For more information about the High Income Child Benefit Charge, see PAYE14015.

Work items

The following work items will be generated where automatic tax coding cannot be carried out

  • Work item 420 ‘SA Auto Coding - No trace individual’ - Action Guide at PAYE120056
  • Work item 421 ‘SA Auto Coding - Married Couple’s Allowance Discrepancy’ - action guide tax40211 WMI421
  • Work item 423 ‘SA Auto Coding - Manual Code indicator set’ - Action Guide at PAYE13152
  • Work item 424 ‘SA Auto Coding - Manual P2 / P2X necessary’ - Action Guide at PAYE13153
  • Work item 425 ‘SA Auto Coding - TEBEN indicator set’ - Action Guide at PAYE13154

The tax return information will relate to CY-1 but the work item will display as the CY tax year.

Non PAYE income

Where the following non PAYE income is to be coded and the total amount exceeds £10,000 the amount included in the tax code will be restricted

  • UK dividends, bank / building society interest and untaxed interest (PAYE130060)
  • Income from property (PAYE130070)
  • Commission, non coded income, tips, other earnings and other income (not earned) (PAYE130035)

The non PAYE income over £10,000 will be included in the Non Coded income field in IABD unless the current year’s tax code already includes non PAYE income over £10,000. In this circumstance the full amount over £10,000 will be coded.

NPS will calculate the maximum K code to be operated and will restrict the non PAYE income included in the tax code. Any restricted amount will be included in the Non Coded income field in IABD.

Note: Where work items 421, 423, 424 or 425 have been triggered, the values for non-PAYE income will not be restricted, nor will the maximum 50 per cent K code have been calculated. Refer to action guide tax40002, and reduce the non-PAYE deductions where required before triggering a tax code calculation.