PAYE13120 - Coding: coding: general principles: penal indicator

Where a targeted review form (P810) has been issued but not logged as received, the Penal indicator is automatically set on the record. Recording the receipt of the form will result in automatic cancellation of the Penal indicator (PAYE79061) (before December 2010 the penal indicator was also set when the 575 and R40 was issued).

The presence of the Penal indicator does not prevent the granting of any allowance in coding and there is no justification for withholding an allowance properly claimed and found to be due because a review form, or the information asked on it, is outstanding.

Example

A P810 is issued in April 2008 as there are job expenses of £800 in the coding. The individual does not respond to this (so the Penal indicator is set on the record) but in August 2008 he

• Puts in a claim for professional subscriptions agreed at £350 a year

• Is now receiving commission estimated at £200 a year

You amend the CY and CY+1 coding for these items but if the P810 has not been logged as received, the Penal indicator will still be recorded on the system as the job expenses details are still outstanding.

If you do nothing further, then at the next Annual Coding Main Review, the computer will

• Withdraw job expenses and professional subscriptions for CY+1
• Increase commission to £300
• Include a penal note on the form P2

A further P810 will be issued in April 2009 as long as nothing has been logged in and there are still valid selection criteria present.

What will happen at annual coding?

The Penal indicator will have been automatically set where a targeted review form (P810) has been issued but not logged as received. Annual Coding Main Review will then withdraw certain allowances and increase certain deductions by a set percentage, whether or not the item was the reason for the issue of the review form

• Allowances to be withdrawn. Any of the following allowances present in the coding record for CY+1 will be withdrawn

• • Gift aid payments
  • Job expenses
  • Loan Interest
  • Higher rate tax relief on pension payments
  • Professional subscriptions
  • Payments towards a retirement annuity

• Deductions to be increased. Any of the following deductions present in the coding record for CY+1 will be increased by the percentages shown

• • Commission 50
  • Other earned income 50
  • Other earnings (Not earnings) 50
  • Income from property 50
  • Untaxed interest 50
  • Other earnings (Earned income) 50
  • Part time earnings 50
  • Tips 50
  • Occupational pension 10
  • Personal pension annuity 10

Annual Business Guidance Notes (BGN) will tell you if these percentages change.