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HMRC internal manual

PAYE Manual

PAYE operation: specific employments: armed forces: service pensions


Armed forces pensions are paid following completion of 22 years service for `other ranks’ and 15 years service for commissioned officers - when their pension should strictly be referred to as `retired pay’. Therefore, many ex-service personnel receive their pensions at a much earlier age than most other employees.

Notification procedure

Details of retired pay / service pension are sent by the relevant pensions authority to

  • Public Departments 1 in respect of Army, Royal Navy or Royal Air Force personnel

Coding procedure

PD 1 initially set up new secondary source pension cases for new pensions using tax code BR. They assume that the ex-serviceman or woman will hand the form P45 issued on leaving the Armed Forces to a civilian employer or their local Benefit Office. Tax code BR will be carried forward unless the secondary source tax code is changed.

However, for years following that in which the pension commenced, cover the Forces pension by restricting the main employment tax code. Calculate any surplus allowances that are available from the primary source. Use the edit employments allocation function from the Tax Code Header screen in the coding area to allocate any surplus allowances. Subject ‘Coding: work items 137 and 156’ at PAYE13070 has more information.

If no surplus allowances are due, the occupational pension secondary source should be coded 0T, BR, or D prefix as appropriate unless the individual requests that their allowances are reallocated between their different income sources. See PAYE11055 for more information about ‘Special codes for secondary sources’. Consider swapping primary and secondary source employments if this will make long-term management of the case easier.

Coding out service pension: Occupational Pension and Forces Pension

The specific code restriction Forces Pension exists to code out Forces pensions. It should only be used for those who are over age 55 as Forces Pension can be automatically uprated at annual recoding.

Which employment should be the main employment?

The main employment source will be at Public Departments only if the service pension

  • Exceeds the net coding allowances (excluding any underpayment restriction)
  • The amount of service pension is expected to exceed the other source

Where there are only short breaks between civilian employments, offices should avoid transferring the main employment status to the PD. (It is probable that on resumption of employment the new employment office will acquire that responsibility). PD should become the main employment only where the likelihood of civilian employment or self employment is remote and the individual has been unemployed for at least the previous twelve months.

Additional pensions paid to holders of certain gallantry awards

Additional pensions (but not the basic service pension) paid to holders of certain gallantry awards are not treated as income for Income Tax purposes.

Further information on Exempt Armed forces pensions can be found in the Employment Income Manual (EIM) at EIM74302.

Further information on Exempt Public Service pensions can be found in the EIM at EIM74310.