PAYE10020 - coding: coding allowances and reliefs: allowance restriction

Certain reliefs are only given at a single rate for all and are given as a reduction in the amount of tax payable. For coding purposes the relief is given as an allowance with an accompanying deduction. This ensures the allowance is worth the same amount to each taxpayer. In most cases the computer can use the ESTPAY on the record to calculate the correct amount of the restriction automatically. But there are some occasions when you will have to check the details manually.

Allowances affected

The allowances affected are

• MAA Married 65-74
• MAE Married 75 and over
• WAA Married allowance transferred - husband 65-74
• WAE Married allowance transferred - husband 75 and over
• WMA Wife's Married Allowance
• MCCP Married Couple’s Allowance
• MP Maintenance Payments

Note: You must not use the term 'MCCP' in correspondence or when you are speaking to a taxpayer or their agent. You must always refer to the 'Married Couple's allowance' when you are dealing with taxpayers and their agents.

Coding restriction (HPAR)

The restriction HPAR (Higher Personal Allowances Restriction) appears in Functions CD and CH as a coding deduction. The amount depends on the taxpayer's expected highest rate of tax. The taxpayer's notice of coding does not refer to the HPAR, the notice of coding only displays the net amount with a note that explains what the allowance is worth in terms of tax.

For example Function CD for a 2006-2007 code with estimated income £26430 displays as

The taxpayer's notice of coding will display

A note will be added to the notice of coding which will explain that married couple's allowance is worth £514.50 to the customer by having £2339 included in the tax free amount (£514.50 is £2339 at 22%).

Where the maximum allowance is due there are standard figures of HPAR for each year. These are set out in the P202 charts for the relevant years.

These standard amounts will vary if

• The taxpayer is liable at more than one rate on the allowance

Or

• A non-standard amount of the allowance is included, such as a reduced age related allowance

Note: The standard amounts are rounded down to convenient figures but in other cases the computer uses an accurate figure.

How restriction is calculated

To calculate the tax payable and HPAR required the computer uses

• ESTPAY on the record
• Net coding allowances (excluding UPR)
• Allowance(s) to be restricted

The HPAR calculated will relate directly to the amount of ESTPAY held on the record. If, exceptionally, you decide that to collect the right amount of tax or to calculate AAE a non- standard amount of HPAR is needed, you will have to enter a figure for ESTPAY which gives you the HPAR you want. See the Action Guide at PAYE13061 for when to enter manually.

When restriction is calculated

The computer calculates the HPAR automatically in each of the following situations

• Annual Coding Main Review
• Annual Coding Supplementary Review
• Budget Coding Main Review
• In Function CD when there is a change to the net coding allowances
• In Function CD when ESTPAY is entered or amended