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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: claim ceases

Where a P45(1)ESA is received and the live primary source is an occupational pension / retirement annuity and the live secondary source is ESA, the PAYE Service will compare the amount of ESA received on the P45 to the amount of ESA deduction in the live primary tax code.

Where the amount in the tax code is more than the amount on the P45(1), the PAYE Service will amend the deduction in the live primary tax code to equal the amount on the P45(1).

Where the amount in the tax code is less than the amount on the P45(1), the PAYE Service will not automatically amend the CY live primary tax code to include the actual amount of ESA shown on the P45(1). Instead, the PAYE Service will record the actual amount in accordance with the P45 in Employment Maintenance and will reconcile the case at the end of the year.

Where ESA has ceased in CY, the PAYE Service will reduce the CY+1 ESA amount to zero.

PAYE77260 advises the action to take where you are advised of an Employment Support Allowance (ESA) claim where there is permitted work / continuing employment. This includes amending primary employment to secondary and setting the potentially ceased indicator.

If it is clear that the above actions have been taken in line with PAYE77260, and the record displays a live primary employment for ESA for which P45 details are displayed then you should

  • Remove the P Ceased indicator, if set
  • Change the employment source to a primary source, if not already primary
  • Enter a deduction in IABD for the actual ESA shown on P45
  • Enter an ESTPAY figure for the employment source
  • Code the case accordingly