Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

PAYE Manual

From
HM Revenue & Customs
Updated
, see all updates

PAYE operation: employment and support allowance: important points to note

Important points to note about Employment and Support Allowance are listed below by functional area.

Annual Coding

You should refer to the annual coding Business Guidance Note (BGN) and / or Newsboard messages for the dates when the uprating takes place. See PAYE77251.

Coding

  • Where ESA is the ‘live’ primary source no ESA deduction should be included in the primary source tax code
  • ESA can only be coded out in the primary source tax code when the primary source is an occupational pension / retirement annuity and the OCPN indicator is set on the employment record. ESA cannot be coded out where the primary source is an employment, in these cases you should follow the guidance at PAYE77260
  • When a new occupational pension is notified, the occupational pension source should be set up as primary and the Employment and Support Allowance as secondary

Note: You must ensure the OCPN indicator is set against the new occupational pension.

  • When Employment and Support Allowance ceases in CY remember to check that Employment and Support Allowance has been removed from CY+1

Note: Where Employment and Support Allowance has finished in CY the PAYE Service will automatically amend CY+1 to zero.

  • A customer cannot receive both taxable Employment and Support Allowance and State Retirement Pension (NIB) at the same. The only time when both Employment and Support Allowance and State Retirement Pension should be coded in the same tax year is in first year State Pension cases. Employment and Support Allowance will finish the week before the State Retirement Pension begins, this would normally by CY. IABD for CY+1 must be updated to remove the Employment and Support Allowance deduction

Note: NPS ‘Tax Code Details’ screen will show the total of all state pension/state benefits received but the P2 output will use the individual amounts from the IABD summary screen and include a relevant explanatory note for each type.

  • A customer can receive both taxable Employment and Support Allowance and Widowed Parent’s Allowance (WPA) or Bereavement Allowance (B Allce) at the same time. IABD must be updated with the WPA or B Allce amounts
  • Employment and Support Allowance and Incapacity Benefit cannot be coded together in CY+1. Employment and Support Allowance and Incapacity Benefit can only be coded in the same tax year when Incapacity Benefit finishes and the new claim is Employment and Support Allowance, this would normally be in CY
  • If Employment and Support Allowance is the ‘live’ secondary source on the record you must not allocate any balance of allowances to the Employment and Support Allowance source, code BR must be allocated

Employment Maintenance

  • The existence of both the secondary source and a deduction for Employment and Support Allowance in the current tax code will not result in either coding or reconciliation including the income twice
  • When Employment and Support Allowance is the live secondary source it will be shown on the record in the Employment Summary screen and as a deduction in the primary source tax code where the primary source is an occupational pension / retirement annuity
  • If the primary source is an employment and income is continuing from this source you cannot code out the ESA, as ESA can only be coded out against an occupational pension / retirement annuity. Where income is still being received from the employment you should follow the guidance at PAYE77260 and keep the ESA source as primary
  • If there is a ‘live’ occupational pension primary source on the record with one (or more) ‘live’ secondary sources then an Employment and Support Allowance secondary source will be created and code BR will be allocated

The introduction of the Scottish rate of Income Tax from 6 April 2016 individual’s will pay tax at the UK (England, Wales and Northern Ireland) or Scottish Income Tax rate(s) depending on the individual’s residency status.

The Income Tax Residency Status screen on NPS will display ‘Scottish Taxpayer’ for the tax year where the individual is liable to pay tax at the Scottish rate(s) and their tax code will have an S prefix. Further information about the Scottish rate of Income Tax is given at PAYE100035.

End of Year

  • A P14 is expected for each separate period of Employment and Support Allowance claimed within a tax year

The end of year reconciliation will only include the Employment and Support amount(s) from the forms P14 posted to the record, it will not use any amount entered in IABD or the amount in the tax code.