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HMRC internal manual

PAYE Manual

PAYE operation: taxation of jobseeker’s allowance: payment of benefit by employer

Job Centre Plus sometimes asks employers to calculate and pay benefit to Special Case claimants. Where the employer agrees, the following action is taken

  • The taxable portion of benefit is treated as pay and taxed under normal PAYE arrangements each pay day
  • The taxable benefit is shown as a separate figure on the employee’s payslip
  • The benefit is not shown separately on forms P14, P45 or P60

Note: Where the tax code has an S prefix this indicates the individual is liable at the Scottish rate of income tax and the employer should deduct tax using the appropriate Scottish income tax rate. Further information about the Scottish rate of income tax is given at PAYE100035.

The employer may agree to pay the benefit but claim not to be able to apply PAYE to the individual’s portion. If it is clear that the employer will not pay the benefit if required to deduct tax, the Department for Work and Pensions

  • Obtains HMRC authority for payment of benefit without deduction of tax
  • Reports the facts to Personal Tax Customer, Product & Process, PAYE Technical, Shipley, so that instructions can be sent to the office concerned
  • Reports the taxable benefit on form P181 as usual

Where benefit is paid by the employer, Job Centre Plus does not issue a statement of taxable benefit to the claimant. If the individual expresses dissatisfaction with the benefit shown on payslips, Job Centre Plus will issue form P181. This is done to keep the appeal procedure open whether or not the employer continues to pay and tax the benefit.