PAYE13053 - coding: coding: general principles: coding rules
This subject is presented as follows
Choosing figure for other income
Deductions
Estimates
How to allocate rates of tax
Main source office and sub-source responsibilities
‘Provisional’ coding items
Rounding up figures
Updating the PAYE code for a leaver
When is sub-source record required?
Choosing figure for other income
When you have to deduct other income from allowances follow these rules
- The correct figure is the amount you would assess for the coding year
- For the next coding year you can use the same figure as you used for the current year. However, if you know this figure may be much different, use a better estimate
Deductions
Cover by allowances, by deducting the amount from the allowance at the main source, any of the following
- Sources of earnings, for example small fees and tips
- Casual profits
- Interest
- Property income
- State pensions (this is taxed as PAYE income)
Do not code out income already taxed at source, such as
dividends, bank or building society interest. However in higher
rate cases for which a taxed income adjustment is needed you should
refer to
PAYE13075.
Where a deduction creates a K code, refer to
PAYE11015.
If an individual objects to the coding out of non-PAYE
income, remove the deduction from the code.
Estimates
When you need to make an estimated coding entry
- Use the coding charts to help you
- Make a reasonable estimate, using any information that may help you, unless the taxpayer provides you with a more accurate figure
How to allocate rates of tax
Try to arrange the items that are chargeable to tax in such a
way that the taxpayer suffers the lowest rate first.
In most cases we collect tax on income covered by PAYE before
that collected in other ways. So, where you can, under PAYE
- Give any allowances due in the code
- Charge tax at the lower rate before the basic rate and higher rates, and so on
- However, you should remember to
- Code out any untaxed income as usual
- Follow any order the taxpayer prefers
Main source office and sub-source responsibilities
The main source office must see that the coding for the main
source and any sub-source contains the correct allowances.
For the main source the main source office should
- Work out the taxpayer's code
- Send the taxpayer a notice of coding
- Tell the employer the code to use
For the sub-source, the main source office should liaise with the sub-source office to determine the code to be used. The sub-source office can then
- Send the taxpayer a notice of coding
- Tell the employer the code to use
‘Provisional’ coding items
You may occasionally need to give an allowance or relief on a
provisional basis. If you do, be sure to make it clear on the P2 or
letter that it is only provisional.
This is because a P2 or letter is normally enough to
determine a taxpayer's claim to an allowance or relief. It may be
binding on HMRC, even if in the end the allowance or relief is not
due.
This does not apply if it is only the amount of an allowance
or relief that is in doubt, for example with an age related
allowance or relief for interest paid.
Rounding up figures
When rounding up amounts round any pence figure
- In allowances, to the pound above
- In deductions, to the pound below
Updating the PAYE code for a leaver
The code must be maintained and updated for CY leavers. There is no need to maintain the code for CY-1 or earlier leavers.
When is sub-source record required?
Set up a sub-source record and contact the main source office for help in determining a code when
- Sub-source earnings are more than the basic Personal allowance
Or
- You want the employer to deduct tax, this includes cases where the pay varies and coding it out is difficult
