PAYE12001 - Coding: coding deductions and expenses: introduction

A tax code can be used to code out PAYE deductions such as benefits in kind and, unless a customer objects, tax due on non-PAYE sources of income.

An individual may object at any time to the inclusion of non-PAYE income in a code and you must then amend the code to exclude such income. This right to object applies even if the individual has previously agreed to the inclusion of the income but then has a change of mind. The position is different for PAYE income such as benefits in kind, state pension or other state benefits included in a code. The Employment Income Manual (EIM) gives more information.

If the customer does not accept your decision, they have 30 days from the date you issue the decision letter within which to send you an appeal. Once they have appealed you may offer a review or the customer may request a review by HMRC. Alternatively they may appeal to the First-tier Tribunal - see ‘Appeals Review and Tribunals guidance (ARTG)’ for more information about what to do if you receive an appeal.

Employees and directors are entitled to a deduction for expenses necessarily incurred in the performance of their duties and these can be included in the code as expenses. This guidance tells you how to code the expenses due but the EIM explains how you decide if a deduction is due.