PAYE11115 - Coding: codes: how they are used and calculated: deductions - how to calculate

The table below shows deductions and how they are calculated, with links to further guidance on the topic from within this Manual.

P202: deductions

Description used on coding notices Circumstances Deduction
Your State Pension / State Benefits All cases Deduct the amount receivable for current year, estimated where necessary.Note: The source amount of state pension / state benefits may differ from the coded amount because of the uprating process using old and new weekly rates.PAYE130065 
Public Service pension Public service pensions coded out Deduct estimated gross amount receivable in current year, taking into account annual rate of increase where appropriate.PAYE130065 and PAYE76130 
Forces pension Forces pension coded out Deduct estimated gross amount receivable current year, taking into account annual rate of increase where appropriate.PAYE130065 
Taxable Incapacity Benefit or Employment and Support Allowance Taxable benefit coded out The source amount of incapacity benefit may differ from the coded amount because of the uprating process using old and new weekly rates.PAYE130075 
Married Couple’s Allowance to your wife Couple where either the husband or wife are aged 75 or over and the date of marriage is before 5 December 2005 and
  • The wife has elected to have half the Married Couple’s Allowance set against her income
     
    Or
     
  • The husband and wife have jointly elected for the wife to receive the whole of Married Couple’s Allowance
 Deduct half or whole of the minimum amount of the Married Couple’s Allowance (but not the age-related additions) which have gone to the wife.PAYE130025 
Estimated Jobseeker’s Allowance Jobseeker’s allowance coded out - where: Deduct:
 
  • Taxpayer is occupational pensioner, or part-time worker
 Estimated jobseeker’s allowance receivable for current year
 
  • BA has not operated PAYE
 Amount notified by BA
    PAYE130075
Interest without tax taken off (Gross Interest) Tax Due on untaxed savings income PAYE130060
 
  • Where the untaxed interest is covered by allowances in the code
 No adjustment necessary to the amount of savings income to be coded out
 
  • There are allowances and a balance of savings rate band
 Amount of savings income covered by allowances plus the balance available at the saving rate x 10/Basic rate band
 
  • There is a balance of savings rate band
 Adjustment to balance of savings rate band x 10/Basic rate band
 
  • Estimated highest rate for both taxable and main employment is 20 per cent
 No adjustment necessary to the amount of savings income to be coded out
 
  • Estimated liability on taxable income is at higher rate
 No adjustment necessary to the amount of savings income to be coded out PAYE130060 
Foreign Dividends and Interest Where foreign dividends and/or taxed interest from abroad is received and individual liable at the higher rate and / or additional rate on all or part of the income (except income taxed on a remittance basis)  
 

Foreign Dividends

Calculate tax due (Dividends plus 1/9 UK tax credit) at 32.5 per cent (or the higher rate of 42.5 per cent for 2012-13, 37.5 per cent for 2013-14) = (A)Deduct UK tax credit and foreign tax paid = (B)(To a maximum of liability and apportioned if necessary)Estimated liability at coded source is:		  
 
  • Liability at Basic rate
 Coded value is 100/Basic rate
 
  • Liability at Higher rate
 Coded value is 100/Higher rate band
 
  • Liability at Additional rate
 Coded value is 100/Additional rate band
 

Foreign taxed interest

Calculate tax due at Highest tax rate on gross interest (all or part) = (A)Deduct foreign tax paid = (B)(To a maximum of liability and apportioned if necessary)Estimated liability at coded source is:		  
 
  • Liability at Basic rate
 Coded value is 100/Basic rate band
 
  • Liability at Higher rate
 Coded value is 100/Higher rate band
 
  • Liability at Additional rate
 Coded value is 100/Additional rate band
Allowance restriction Where an allowance is present for any of the following for which relief is restricted to 10 per cent  
  Married Allowance - all versions for husband or wife or civil partnerMaintenance PaymentsNote: We do not show the allowance restriction, just the net figure and explain what the allowance is worth in terms of tax The amount of allowance restriction calculated by the computer will be:
  • For an individual liable at basic rate only - the restriction is the allowance x 10/Basic rate
     
  • For an individual liable at higher rate - the restriction is the allowance x 30/higher rate
     
  • For an individual liable at additional rate - the restriction for 2012-13 is the allowance x 40/additional rate
    For an individual liable at additional rate - the restriction for 2013-14 is the allowance x 35/additional rate
PAYE10020
Other Earnings Other (earned) income. Not covered by Self Assessment. Deduct estimated gross amount receivable current year. (Normally this will be the previous year’s amount unless it is likely to vary substantially)PAYE130035 
Reduction to collect Unpaid tax (£ tax unpaid) Where taxpayer is NNL No adjustment is necessary
  Estimated taxable pay at main source (after taking into account any adjustment for charges) is Adjustment is calculated as below:
 
  • Chargeable at Basic rate
 Underpayment x 100/Basic rate
 
  • Chargeable at Higher rate
 Underpayment x 100/higher rate
 
  • Chargeable at Additional rate
 Underpayment x 100/additional rate
    PAYE12070
Reduction to collect High Income Child Benefit Charge Adjusted Net Income is in excess of the minimum income limit, and estimated pay at main source is Adjustment is calculated as below:
 
  • Chargeable at Basic rate
 Child Benefit Charge x 100/Basic rate
 
  • Chargeable at Higher rate
 Child Benefit Charge x 100/Higher rate
 
  • Chargeable at Additional rate
 Child Benefit Charge x 100/Additional rate
    PAYE14015
Other earnings (or pension) Allowances allocated from the primary source to secondary source(s). This is not used for transfer of allowances between spouses Calculated by allowances less estimated payPAYE11055 
Savings Income Taxable at higher and / or additional rate tax Where there is savings income and liability is at higher rate To calculate the deduction manually
 
  • UK Taxed Interest
 Gross UK Taxed Interest x highest tax rate per cent = (A) tax due(A) minus tax deducted at source= (B) tax dueTax code adjustment = (B) x 100/highest tax rate at primary employment
 
  • UK Dividends
 Gross UK Dividends x dividend highest tax rate per cent = (C) tax due(C) minus lower dividend tax credit deducted = (D) tax dueTax code adjustment = (D) x 100/highest tax rate at primary employment
  The system will calculate the appropriate deduction using savings income entered in IABD PAYE130060
Adjustment to Basic Rate BandUp to 5 April 2011 Allowances or code BR at secondary source and individual liable at higher rate.The system will calculate the appropriate deduction using estimated pay details held on the record To calculate the adjustment manually
  • Work out the tax due from all sources as a whole
     
     
  • Work out the tax due for each source separately - add these together
     
     
  • Multiply the difference between these two amounts by 100
     
     
  • Divide this by the rate of tax at the main source - the result is the amount of adjustment needed
Adjustment for Tax rate bandsFrom 6 April 2011 Allowances, code BR or D0 at a secondary source and the individual is liable at higher rates.The system will calculate the appropriate deduction using estimated pay details held on the record To calculate the adjustment manually
  Example (2013-14 rates)  
  Step 1Total taxable pay - 15200032010 x 20% = 6402117990 x 40% = 471962000 x 45% = 900Total Tax = 54498 Calculate the total taxable pay from all sources, and the tax due on this total
  Step 2Primary 27000 Code 0T27000 x 20% = 54001st secondary 18000 x 20% = 36002nd secondary 10000 x 40% = 40003rd secondary 97000 x 40% = 38800Total tax 51800 Calculate the total tax due for each source separately, using the tax rate as the rate each secondary source of income falls into
  Step 354498 - 51800 = 2698 x 100 Minus step 1 from step 2 and Multiply the difference between the two amounts by 100
  Step 4Divided by 20 = 13490 ARB Divide this by the rate of tax at the main source - the result is the amount of adjustment needed
Widows and Orphans Adjustment Where an allowance is present for Widows and Orphans, for which relief for a maximum of £100 is restricted to the basic rate The appropriate allowance adjustment will be calculated automatically as follows:
 
  • Liability at Basic rate
 No adjustment necessary
 
  • Liability at Higher rate
 Payment multiplied by (Higher rate minus 20) / Higher rate
 
  • Liability at Additional rate
 Payment multiplied by (Additional rate minus 30) / Additional rate
  Note: From 6 April 2013 individuals will no longer be entitled to receive tax relief for these payments or subscriptions, therefore no adjustment will be required.  
Gift Aid Adjustment Payment to charities made under the Gift Aid scheme are treated as having been made after deduction of Income Tax at the basic rate.If the amount of Income Tax or Capital Gains Tax actually payable is less than the tax reclaimed by the charity on the gift, then a coding adjustment is required to cover the tax reclaimed by the charity.The additional tax due is the difference between the tax reclaimed by the charity and the Income Tax and Capital Gains Tax due on the total income and chargeable gains To calculate the adjustment manually
  • Estimate the income tax and capital gains tax payable = (A)
     
     
  • Calculate the amount of tax reclaimed by charity. This is the Net gift payment multiplied by 20/(100-20) = (B)
     
     
  • Compare (A) with (B)
If (A) is equal to, or more than (B)
  • No coding adjustment is necessary
If (A) is less than (B)
  • A coding adjustment is required.
     
    The adjustment is (B) - (A) x 100/highest rate of liability
Where (A) is Nil, add any unused allowances to the coding adjustment figure. In these cases, a letter of explanation detailing the adjustment can be issued to the customerPAYE130030

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