PAYE13090 - Coding: coding: general principles: estimated pay
Estimated pay is usually based on the pay at the coded source and is used by the system in the calculation of underpayment restrictions and allowance restrictions. When you are considering estimated pay, accept any estimates provided by the individual.
If you have a recent return or other evidence such as the presence of a secondary employment source to suggest that the individual has other income, you may need to take this into account when arriving at the estimated pay figure. Do not issue a return or enquiry to check if there is other income unless you think this will have a material affect on the estimate.
Remember that estimated pay is not carried forward; the system will calculate an amount for CY+1 at annual coding using P14 information. Consider if you need to enter a figure for both CY and CY+1.
You will need to enter a figure for estimated pay on the record if you come across cases where the system has been unable to calculate estimated pay.
How to review estimated pay
How to update estimated pay
System calculated estimated pay
System cannot calculate estimated pay
Manually calculated estimated pay
More than one coded source
How to review estimated pay
You will need to review the figure for estimated pay on the record if
- NPS has assumed basic rate liability, see ‘System cannot calculate estimated pay’ below
- It becomes apparent that the current estimated pay figure needs amending because, for example, the individual's rate of pay has altered as a result of a change of job or retirement (however, in the majority of cases you will not know the revised rate of pay)
- A code is amended in-year and a potential underpayment (PUP) is calculated
- A calculation is issued to the individual that results in an underpayment that will later be collected through the code
- The case is reviewed and there is more than one coded source
How to update estimated pay
Estimated pay should be updated by
- Using the latest information provided by the individual or employer
- Using evidence of previous earnings
Note: If you use P14 to calculate estimated pay and start date is held in the year the P14 relates to, you should work out the estimated pay as though it was received for the full year.
- Where no details are held assume that the individual will be liable at basic rate and use £15,000 as estimated pay for a primary employment and £5,000 for each secondary source where no pay details are held
System calculated estimated pay
Note: NPS will not overwrite any CY+1 estimated pay figure already entered manually.
The guidance below should be used in conjunction with the yearly annual coding Business Guidance Note (BGN).
Each year at annual coding NPS automatically calculates the estimated pay figure for each live employment on an individual’s record in the following order
| 1. | The CY-1 P14 figure for that linked employment |
| 2. | If CY-1 P14 is not available, the CY-2 P14 figure for that linked employment |
| Note: The P14 is not linked until it is viewable on the Employment Summary screen. | |
| 3. | Where the Employment Details screen holds a start date for the relevant employment which is after the beginning of the CY-1 (or CY-2 if the rules take the calculation that far back) the part year figure will be annualised |
| The annualised amount is calculated as follows | |
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| For example | |
| Employment started 28 October and the pay received is £2,500. There are 160 days from this start date to 5 April inclusive so NPS will calculate the estimated pay figure as follows | |
| 160/7 = 22.85 (rounded down to the nearest week (22 weeks) | |
| £2,500/22 X 52 = £5,909.00 | |
| Note: An end date will not be used when calculating the total number of days. Days will always be calculated from the start date to the end of the tax year. Where this has happened you should update the estimated pay if appropriate | |
| 4. | For primary employments only, if the relevant employment started on or after 6 April in CY then use the P14 figures for CY-1 (or CY-2 if rules takes the calculation that far back) for the previous employment |
| 5. | If no estimated pay figure can be derived from a P14, but an estimated pay figure is set for CY against that employment, NPS will carry forward and uprate that figure by the pre-set percentage uplifts into CY+1 for that employment |
System cannot calculate estimated pay
If estimated pay is not present on the record for CY and no forms P14 are held, NPS will assume basic rate liability when calculating coding adjustments unless the higher rate indicator is set. In these cases, NPS will use the higher rate to calculate any coding adjustments. You will be able to determine that this rule has been applied as follows
- View the latest tax code for each employment on the Tax Code Details screen
- The estimated pay figure will show ‘0’ and estimated tax ‘0.00’
- View IABD Data from Tax Code Details screen
- The employment estimated pay field will be blank
Where these cases are found you should update the estimated pay in accordance with ‘How to update estimated pay’ above.
Manually calculated estimated pay
There is no set percentage increase used to calculate a figure of estimated pay, except where the OCPN indicator is set on the employment record. You should initially use any estimate provided by the individual. If no figure has been provided by the individual it may be helpful to review the rate of increase in P14 income for earlier years and use a similar rate to calculate the new figure for CY or CY+1.
Note: It is important that when estimated pay is reviewed in occupational pension cases, care is taken as some pensions are paid as a static amount and will not require an increase in the estimated amount. Please review earlier year P14 details and Contact History to check whether this is the case.
More than one coded source
Where there is more than one coded source of income, you may need to check that the estimated pay in use is calculating the correct amount of restriction. Where the individual is liable at the same rate at each source, it may not be necessary to change the estimated pay. However, where one or more of the following situations exist, a check should be made
- The individual is not liable at the primary source
- The primary source contains other earnings, (or pension)
- The rate of tax payable at the secondary source is higher than the rate payable at the primary source
- There are tax adjustments such as Adjustment to Tax Rate Bands restriction or savings income taxable at higher rate
First, make sure you need to maintain any secondary source record. If you need to maintain the secondary source(s)
- Work out the estimated liability for the year
- Calculate the allowance restriction needed to collect the correct amount of PAYE tax
- Enter an appropriate figure of estimated pay to give you the allowance restriction you want
Use the following formula to calculate estimated pay where allowance restriction is present and there are tax adjustments in the coding
- (Primary source pay minus Adjustment to Tax Rate Bands restriction or savings income taxable at higher rate) + (secondary source pay minus allowances allocated against other earnings, (or pension))
The system will automatically calculate the allowance restriction when you enter estimated pay.
