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HMRC internal manual

PAYE Manual

From
HM Revenue & Customs
Updated
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PAYE operation: double taxation claims submitted by non resident individuals: cancellation of double taxation relief: coding (Action Guide)

To issue a tax code when the double taxation (DT) relief has been cancelled, follow steps 1 - 11 below.

The guide is presented as follows

  Steps 1 - 6
   
  Steps 7 - 9
  Step 10
  Step 11

Cancellation of DT relief - coding CY

Before you issue a tax code for the year in which a double taxation exemption has been cancelled, you will need to calculate the amount of income that will be liable to UK tax for all income sources that were previously exempt. This amount will be entered as the employment estimated earnings amount in IABD.

1. In Excel select SEES then Other Calculators + Forms + NPPS then Dates Calculator
   
  * Select time apportionment tab
  ‘Base Period’
  * ‘From’ date is start date of current tax year
  * ‘To’ date is the following 5 April
  * ‘Amount’ is total estimated amount of income for the year
  ‘Apportionment Period’
  * ‘From’ date is date of cancellation of exemption
  * ‘To’ date is following 5 April
  This calculates the amount of income liable to UK tax
  * Print a copy of the calculation
  * Repeat for each source of income that was previously exempt
  Where no state pension is received or the state pension was not exempt go to step 3
2. For state pension, only the liable amount of state pension is entered in the State Pension Box in IABD
  * Calculate the amount of liable state pension as in step 1 above
3. Update employment estimated earnings to show the liable estimated amount
  * In IABD Landing, select other form and relevant tax year. Enter date of receipt
  * Drill down into Employment Estimated Earnings
  * Enter the liable amount, as calculated in step 1, for all income that was previously covered by the exemption
  * Enter the gross estimated amount for any income that was not covered by the exemption
  * Save
  Where no state pension present or where state pension was not covered by the exemption, go to step 5
4. * Drill down into Pensions and then into State Pensions
  * Record the liable amount as calculated in step 2
  * Set the Estimated National Insurance Benefit indicator
  * Set the frequency to Annual
  * Save and Save again
  * Select save
5. * Select Individual
  * Select Indicators
  * Delete freehand note in Additional Notes
  * Save
  * Enter Contact History note - in the Actions box enter ‘DT exemption cancelled with effect from [date]. IABD updated for year of cancellation’
  * Save
6. You will now be taken to the Coding Screen
  * You will need to request the P60 for the current tax year as an underpayment of tax may arise
  * Select Notes
  * Select Special Notes
  * Select ‘P60’ and the current tax year and Save
  * Ensure that the P2 and P6 are showing as Issue, and save / submit
  * Continue with the coding following normal rules and allocate any unused allowances to secondary sources as applicable
  * Ensure all codes are issued on a week 1 / month 1 basis
  * Complete Contact History note - in the Actions box enter ‘[tax year] coding following cancellation of DT exemption’

Cancellation of DT relief - coding CY+1

7. In IABD landing select Other Form, select CY+1 tax year, enter date
   
  * Drill down into Employment Estimated Earnings
  * Enter full estimated pay for each income source
  * Save
  Where no state pension is received or state pension was not exempt go to step 9
8. * Drill down into Pensions, then into State Pensions
  * Enter full amount of state pension for CY+1
  * Set Estimated National Insurance Benefit indicator
  * Set frequency of payment to Annual
  * Save and then Save again and submit
9. Enter Contact History note - in the Actions box enter ‘IABD update CY+1 following cancellation of DT exemption’

Inhibit Automatic Reconciliation and set No Repayment indicator

You will need to inhibit automatic reconciliation and set the No Repayment indicator for the year the double taxation relief was withdrawn. This is because when reconciling the year you will need to enter the non-liable amount of income as Foreign Pension Allowance in IABD - see PAYE81072 for how to reconcile the year of cancellation of double taxation relief.

10. In Reconciliation
   
  * Select tax year for year of cancellation of exemption
  * Select allow / inhibit auto reconciliation
  In Indicators
  * Set No Repayment indicator
  * In Additional Notes box, enter ‘No Repayment indicator set as Double Taxation relief cancelled wef [date of cancellation of exemption]’

Issue P173

11. You will now need to issue form P173 from Forms and Letters in SEES
   
  * Choose the ‘New Uprating Case’ option from the ‘select designator’ drop-down menu
  * Follow the guidance at PAYE76100 to avoid unnecessary rejection of the form by the Department for Work and Pensions computer
  Notes:
a. You should not issue P173 or P46(DWP) slips for state pension cases.
b. P173 or P46(DWP) slips should only be issued to include Widowed Parent’s Allowance (WPA) or Bereavement Allowance (B Allce) cases in the DWP Uprating Service.