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HMRC internal manual

PAYE Manual

PAYE operation: incapacity benefit: form P45(IB)(O)

Form P45(IB)(O) is used to notify the termination of taxable Incapacity Benefit (IB) for cases where

  • Secondary Incapacity Benefit employment was created as primary pension employment was held
  • Incapacity Benefit has been coded out
  • A DWP Stencil had been sent to DWP to notify them that any tax due will be collected through the employment tax code

The P45(IB)(O) shows the date of cessation and the total taxable benefit for ‘this’ claim since 6 April.

The P45(IB)(O) is printed on white paper and should not be confused with the P45(1)IB which is printed on yellow paper. This form can be captured through the DATA CAPTURE screens. For more information see ‘Capturing in-year forms (Action Guide)’ at PAYE60021.

When a P45(IB)(O) is received you should amend the annual Incapacity Benefit amount shown in IABD and issue a revised tax code unless it is a reassessment case, see below.

The reasons for benefit ceasing are normally

  • Claimant passed fit for work
  • Claimant reaching state pension age
  • Death of claimant (when ’D’ is shown in the Deceased box on the form)

Note: You should always check to see if the Incapacity Benefit is to cease because the individual is receiving state pension. If so, you should apportion the Incapacity Benefit to the date of cessation at the same time as entering the state pension.

Reassessment cases

In reassessment cases the Incapacity Benefit held in IABD will be automatically ceased and cessation benefit amount entered.

Note: It can take up to 20 days for this reassessment notification to be received so P45(IB)(O) should not be processed until 20 days after the end date shown.

Reassessment cases can be identified as follows

  • There will be an IABD entry for Employment and Support Allowance (ESA)
  • The start date of ESA in IABD will be the day after the Incapacity Benefit cessation date held in IABD

As detailed at PAYE77210 reassessment cases will receive ESA at the same rate as Incapacity Benefit previously received. This means that the total of Incapacity Benefit and ESA now held in the tax code is equal to the original Incapacity Benefit amount coded.

It is possible the Incapacity Benefit coded deduction amount held in the current tax code does not agree the P45(IB)(O), but the IABD entry for Incapacity Benefit should not be altered, unless you have confirmation that the total coded deduction amount of Incapacity Benefit and ESA held in the tax code is incorrect.

See SPD 6a.19 (PDF 76KB) for the action to take with reassessment P45(IB)(O).