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HMRC internal manual

PAYE Manual

From
HM Revenue & Customs
Updated
, see all updates

PAYE operation: incapacity benefit: modified PAYE used by department for work and pensions

The main differences from normal PAYE are

  • Department for Work and Pensions (DWP) only use a small number of tax codes, based on the most common personal allowances

    • Basic personal allowance (100 per cent amount)
    • Basic personal allowance (100 per cent amount) plus blind person’s allowance
    • Basic personal allowance plus wife’s married couple’s allowance (100 per cent amount)
    • Basic personal allowance plus wife’s married couple’s allowance (100 per cent amount) plus blind person’s allowance
    • Basic personal allowance plus wife’s married couple’s allowance (50 per cent amount)
    • Basic personal allowance plus wife’s married couple’s allowance (50 per cent amount) plus blind person’s allowance
    • Code NT

    Note: Code NT should only be issued in certain circumstances, see PAYE11010. If you are coding out Incapacity Benefit you should issue the DWP stencil held on Office Clerical Assistant (OCA).

  • No code deductions or restrictions (except allowance restriction and married allowance wife) are possible
  • DWP cannot take into account pay and tax from previous employments and so cannot make refunds. Incapacity Benefit codes are therefore always on a week 1 / month 1 basis if there is previous pay and tax in the year taxable Incapacity Benefit commences
  • PAYE is applied to the Incapacity Benefit that is due on each weekly ‘pay day’, irrespective of when payment actually takes place

Where allowances are due which cannot be given in the coding, either

  • Code NT is allocated

Or

  • Leics and Northants (IBTO) make a refund at the end of the year

Where there are deductions or code restrictions that cannot be included, any underpayment is deemed to be stranded unless or until Incapacity Benefit ceases.

Since DWP cannot refund tax from an earlier employment, repayments are made instead by

  • Leics and Northants (IBTO) either at the end of the year, or end of claim

Or

  • By the new employer if the claimant goes back to work