PAYE10010 - Coding: coding allowances and reliefs: age-related allowances

In most cases where a reduced age-related allowance is due the system will work out the amount for you provided the correct information is on the record.

From 6 April 1999 the rate of relief for Married Couple's age-related allowances is due at 10 per cent and from 2000-01 onwards Married Couple’s allowance is only due if at least one spouse was born before 6 April 1935. On or after 5 December 2005 Married Couples and Civil Partners can claim the Married Couple’s allowance if at least one spouse or civil partner was born before 6 April 1935.

Note: You must not use the term 'Married Couple’s and Civil Partner’s allowance' in correspondence or when you are speaking to an individual or their agent. You must always refer to the 'Married Couple's allowance' when you are dealing with individuals and their agents.

The remainder of this subject is presented as follows

Calculating age-related allowances
Adjusted net income (ANI)
Reduced age-related allowances
Estimated income
Year of marriage 

Calculating age-related allowances

The system helps you with some parts of this work. To calculate the age-related allowance(s) due the system needs to know

• The relevant date(s) of birth - (individual’s date of birth and spouse’s / civil partner’s date of birth

• The adjusted net Income (ANI) for the coding year

Note: A P161 must be noted as received to enable the system to calculate the age-related allowances due. Once the P161 has been returned, or when full details of the individual’s income have been confirmed, record receipt of form P161 through ‘IABD Landing’.

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Adjusted net income (ANI)

When calculating the age-related levels of Personal Allowance and Married Couple’s Allowance the system will calculate the individual’s adjusted net income (previously known as net statutory income).

Adjusted net income is calculated as follows

• Stage 1 - start with Net Income (Chargeable income less deductions - for example job expenses, professional subscriptions, losses and loan interest)
• Stage 2 - deduct gross Gift Aid
• Stage 3 - deduct grossed up pension contributions paid under relief at source arrangements
• Stage 4 - add back any payments for life assurance made (payments to trade unions or police organisations including life cover)

The result is the ‘adjusted net income’ which will be used to calculate any reduced age-related allowances. Where the adjusted net income exceeds the income limit for age-related allowances the age-related Personal Allowance and Married Couple’s allowance are gradually reduced by £1 for every £2 of income down to the minimum amount of the allowance due.

You can use the link on the Tax Code Details screen to view the Adjusted Net Income calculation to compare this with the age-related income limit.

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Reduced age-related allowances

When an individual is due reduced age-related allowances, they should usually be set up in Self Assessment so that an annual review of the allowances due can be made. The exception to this rule is where the individual’s only source of income is one PAYE source and state pension which is within the DWP up-rating service.

The correct age-related allowance description will be used and the amount of reduced age-related allowances will be calculated automatically in most cases when

• Estimated income is entered or amended and date of birth or spouse’s / civil partner’s date of birth for an individual of 65 or over is already on the record

• Date of birth or spouse’s / civil partner’s date of birth for an individual of 65 or over is entered and estimated income is already on the record

• Both estimated income and date of birth or spouse’s / civil partner’s date of birth for an individual of 65 or over are entered at the same time or are already on the record

Note: If the individual is not yet 65 but will be aged 65 by the end of the tax year, the system will allow the minimum amount of the personal allowance. To enable the system to calculate the age-related allowances due, a P161 must be noted as received.

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Estimated income

Estimated income appears on form P2 and can be a cause of unnecessary correspondence. Entering an estimated income amount ensures that the correct P2 note is included for reduced age-related allowance cases. There are some cases when it is not necessary to enter estimated income.

As a general rule it is not necessary to enter estimated income if

• The individual is entitled to the maximum amount of the allowance

• The estimated ANI is such that the individual is obviously due the minimum amount of the allowance and is unlikely to be due full or reduced age-related allowances in the foreseeable future

In day to day work, if you have full income details in IABD you should

• Remove any existing estimated income amount and let the system use the total income details to establish the correct amount of age-related allowances due as part of the tax code calculation
• Where the tax code calculation establishes that reduced age-related allowances are not due and either full or minimum age-related allowances are due, issue any tax code changes as necessary
• Where the tax code calculation establishes that reduced age-related allowances are due

• • Make a note of the ANI figure from the coding calculation. This is found in the Tax Code Details screen by selecting the view adjusted net income calculation
  • Cancel out of the tax code and go back to IABD and enter the ANI figure into the estimated income field
  • [Submit] and [Save] the change and issue any necessary tax code(s)

When updating CY IABD with state pension details in the year of commencement, and ‘annual’ NIB has been coded you should

• Make a note of the ANI figure from the coding calculation
• Manually recalculate the ANI by including the ‘actual’ NIB amount which will be received in the year of commencement, rather than the ‘annual’
• Use the recalculated ANI to check whether reduced age-related allowances are due
• If reduced age-related allowances are not due, [Submit] and [Save] the change and issue any necessary tax code(s)
• If reduced age-related allowances are due, cancel out of the tax code and go back to IABD and enter the recalculated ANI figure into the estimated income field
• [Submit] and [Save] the change and issue any necessary tax code(s)
• Where you have entered a recalculated ANI into the CY estimated income field, you must also enter the estimated income amount in CY+1, including the ‘annual’ amount of state pension

In day to day work if you don’t have full income details in IABD and there is an existing estimated income figure

• Leave the figure already entered in IABD

• Issue any necessary tax code(s)

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Year of marriage

If the total income during the year of marriage exceeds the statutory limit for full age-related allowances, the allowance may be restricted in two ways, as the Married Couple’s Allowance is reduced by 1 twelfth for each complete tax month before the date of marriage or civil partnership. See PAYE13110.