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HMRC internal manual

PAYE Manual

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HM Revenue & Customs
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PAYE operation: employment and support allowance: annual coding

Annual uprating

DWP will send an annual uprating file for ESA cases in the same way that they do for State Pension and Incapacity Benefit cases.

When the PAYE Service accepts uprating information from DWP it will automatically change Estimated ESA (if required) on the individual’s record to Actual ESA in IABD.

The PAYE Service will produce a work item when the following circumstance applies

  • WI403 - the DWP file shows NIB to be updated but the individual’s primary employment is live (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Where the actual amount of ESA is not shown on the DWP uprating file, the PAYE Service will automatically update the amount at annual coding by the percentage increase (held centrally) and show this as Estimated ESA.

Where Estimated ESA is calculated, and the ESA benefit commenced during the year, the PAYE Service will calculate the CY annual rate of ESA, to which the percentage increase for CY+1 will be applied.

Coding calculation

The deduction for ESA will be calculated as follows

  • In tax years where 6 April falls on a Monday, Tuesday, or Wednesday, the coding deduction will be calculated by adding 2 weeks of benefit at the old rate, to 50 weeks benefit at the new rate
  • In tax years where 6 April falls on Thursday, Friday, Saturday, Sunday, the coding deduction will be calculated by adding 1 week of benefit at the old rate, to 51 weeks benefit at the new rate

P2 Notice of Coding

From 28 October 2015 the Tax Code Details screen ‘Notice to Individual/Agent (P2)’ dropdown will be set to ‘Issue’ and the details and relevant note will be included on the composite P2.