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.

You will need to review the figure for estimated pay on the record if

• 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). Use evidence of previous earnings to result in an annual amount of estimated pay, 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 £2,500 for each secondary source where no pay details are held
• 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

System calculated estimated pay

The system attempts to post a figure of estimated pay on the record for CY+1 at the Annual Coding Review each year. It will not overwrite any figure already entered manually.

The system will up rate the estimated pay for each live employment on an individual’s record.

Where the system cannot enter a new figure

• If estimated pay is not present on the record for CY, processing will assume basic rate liability when calculating adjustments unless the higher rate indicator is set. In these cases the system will use the higher rate to calculate the allowance restriction and underpayment restriction

It is therefore important to review estimated pay during day to day work, particularly if the code contains an adjustment that is calculated using rates of liability.

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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 basic rate restriction or savings income taxable at higher rate

Firstly 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

The following formula can be used to calculate estimated pay where allowance restriction is present and there are tax adjustments in the coding

• (Primary Source pay minus basic rate 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.