PAYE11110 | Coding: codes: how they are used and calculated: allowances and reliefs - how to calculate

From HM Revenue & Customs · PAYE Manual

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

Note: From 6 April 2016 the Scottish Government will be responsible for setting their own income tax rates for basic, higher and additional rate bands. Where the individual’s sole or main place of residence is in Scotland their tax code will include an S prefix for example, S1100L, SBR, S0T and the appropriate Scottish tax rates for Scottish taxpayers is used to calculate the allowances and reliefs.

From 2018 to 2019 the Scottish Government set five rate bands, starter rate, basic rate, intermediate rate, higher rate and additional rate. Further information is given at PAYE100035.

Note: From 6 April 2019 the Welsh Government will be responsible for setting their own income tax rates for basic, higher and additional rate bands. Where the individual’s sole or main place of residence is in Wales their tax code will include a C prefix for example, C1100L, CBR, C0T and the appropriate Welsh tax rates for Welsh taxpayers is used to calculate the allowances and reliefs. Further information is given at PAYE100040.

There is no S or C prefix for code NT. Code NT is used for all UK residents regardless of where they live.

Where savings and dividend (Investment) income exceed Personal Savings Allowance and Dividend Allowance (with effect from April 2016) all UK residents (England, Northern Ireland, Scotland and Wales) regardless of where they live are taxed using United Kingdom rates.

P202: allowances

Table shown as recovered text

Description used on coding notices Circumstances Allowance or adjustment Job Expenses Expenses other than the flat rate and professional subscriptions Allow whole amount of allowable expenses. PAYE130050 Flat Rate Expenses Flat rate expenses as listed at EIM32712 Allow whole amount of allowable expenses. See also EIM32726 Professional Subscriptions Fees and subscriptions to professional bodies and learned societies as in List 3 Allow whole amount of allowable fees and subscriptions. Earlier Year’s Adjustments To give relief for expenses not already claimed for earlier in-date years Allow whole amount of allowable expenses which have not previously been given relief in either tax codes or end of year reconciliations. PAYE130050 Payments towards a retirement annuity Payments under a pre-6 April 2006 retirement annuity contract that qualifies as a registered pension scheme Allow relief on payments where individual has relevant UK earnings and individual’s total contributions to all registered pension schemes do not exceed those earnings. In 2016 to 2017 and 2017 to 2018 all relief at source for customers (payments made from a bank account, not through salaries) will get the same amount of tax relief (20%). From 2018 to 2019 the pension company should give tax relief at the correct rates. See Pensions Tax Manual PTM044000 onwards. Relief is not due for payments after age 75. PAYE130025 Higher rate tax relief on pensions you’re paying into Individual liable at: - - Basic rate Nil - Intermediate rate, higher rate and or additional rate Calculate the amount of Gross pension payments falling within intermediate rate, higher rate and additional rate bands. The relief is given as the difference between the basic and highest tax rate the customer is liable to. Allow relief on payments where individual has relevant UK earnings and individual’s total contributions to all registered pension schemes do not exceed those earnings. The correct relief will be given through the reconciliation and SA returns. See PTM044000. Relief is not due for payments after age 75. PAYE130025 Charitable Donation Payments Individual liable at: - - Basic rate Nil - Intermediate rate, higher rate, and or additional rate Difference between the highest and basic rate on the portion of payments which are subject to intermediate, higher and / or additional rate liability. The Scottish or Welsh higher and / or additional rate(s) are used where the individual is identified as a Scottish or Welsh taxpayer. PAYE130025. (Scottish rates of income tax PAYE100035). (Welsh rates of income tax PAYE100040) - Note: Use Charitable Donation for all qualifying payments under the Charitable Donation scheme, including those made under a deed of covenant - Concessional relief Use Concessional relief to give relief for gifts of listed shares or securities to charities made on or after 6 April 2001. Note: This allowance is not carried forward and can only be entered from 6 April in the year to which it relates Allow the market value of the shares or securities, plus incidental expenses on transfer, on the donation date, less any consideration or benefit given by the charity to the individual for them. PAYE130025 Enterprise Investment Relief Use to give relief on shares issued after 31 December 1993 previously under the Business Expansion Scheme Relief due at 30% in terms of tax, converted to an allowance based on individual’s estimated highest rate. PAYE130025 - Also use to give relief on shares issued after 6 April 2012 under the Seed Enterprise Investment Scheme Relief due at 50% in terms of tax, converted to an allowance based on individual’s estimated highest rate. PAYE130025 Loan Interest Loans for: - - Purchase of plant or machinery (for example a car) used for purpose of employment Allow interest payable - restricted for any private use in case of plant or machinery - Purchasing ordinary shares in, or making a loan to, close companies or a stake in a partnership Allow interest payable - Any other purpose and bank overdraft or credit card interest Nil - but note that interest on a loan to purchase or improve property let at a commercial rent may be allowable in certain circumstances. PAYE130025 Maintenance Payments Payments to or for spouses, civil partners or former spouses and payments (provided former spouse or civil partner has not remarried). Or payments made for children (parties do not have to have been married or in a Civil Partnership) For all new and existing orders allow: - where: - - Either party was born before 6 April 1935 Lesser of minimum amount of Married Couple’s Allowance or the amount payable in current year PAYE130025 - Both parties were born on or after 6 April 1935 Nil - Payments made to children For all new and existing orders , no relief is due Personal Allowance - Allow: - - Personal allowance - Note: From 2010 to 2011 the personal allowance will be reduced for individuals with adjusted net income over £100,000. For those affected, their personal allowance will be reduced by £1 for every £2 that their income exceeds £100,000 until the personal allowance is reduced to Nil. The point at which the personal allowance is fully reduced will depend on the level of the personal allowance in the relevant year. Anyone with an adjusted net income below this amount will continue to get the full allowance. - Personal Savings Allowance Note: From November 2017 this will no longer be displayed as an Allowance as this will be applied as a zero-rate band From 6 April 2016, the new Personal Savings Allowance introduced tax-free income from Savings Interest. This applies up to £1000 for Basic Rate customers. This applies up to £500 for Higher Rate customers. The PSA does not apply to savings income received by Additional Rate customers. Savings income is taxed at the United Kingdom Basic, Higher or Additional Income Tax rate(s). Allow: Interest paid as savings income up to £1000 and £500 for BR and HR taxpayers. PAYE130025 Married Couple’s Allowance Both the individual and his wife were born after 5 April 1935 No allowance due - Either the individual, or his wife, were born before 6 April 1935 and the date of marriage is before 5 December 2005 Allow - Married Couple’s Allowance. See ‘Income reduction of age-related allowances’ below. PAYE10010 - Either the individual, or their spouse or civil partner, were born before 6 April 1935 and the date of marriage or civil partnership is on or after 5 December 2005 Allow - Married Couple’s Allowance. See ‘Income reduction of age-related allowances’ below. For the year of marriage, the allowance is reduced by 1/12 for each complete tax month before the date of marriage. PAYE10040 Income reduction of age-related allowances From 2016 to 2017 onwards, all individuals will be entitled to the same personal allowance, regardless of the individuals’ date of birth. This allowance is subject to the £100,000 income limit which applies regardless of the individual’s date of birth. The individual’s personal allowance is reduced where their income is above the £100,000 limit. The allowance is reduced by £1 for every £2 above the limit. Note: The personal allowance taper does not affect the minimum amount of Married Couple’s Allowance therefore individuals with net adjusted income over £100,000 would continue to receive the minimum amount of Married Couple’s Allowance even though the personal allowance is tapered or reduced to NIL. - Married Couple’s Allowance transferred to your wife In a couple where the husband or wife were born before 6 April 1935 and the date of marriage is before 5 December 2005, the husband can transfer to his wife any Married Couple’s Allowance which he is unlikely to use in the current year. The transferred Married Couple’s Allowance is shown as a ‘W’ allowance in the wife’s current year coding. In the husband’s coding record it will show as Married Allowance Transferred. Include the relevant amount onto the wife’s coding record where it will show as Surplus Married Couple’s Allowance from husband. PAYE130025 Married Couple’s Allowance from your husband Married Couple’s Allowance provisionally transferred to the wife. Note: ‘W’ allowances are not income reduced if the wife’s net statutory income exceeds the income limit. Allow the amount of ‘W’ allowance calculated from the husband’s record. PAYE130035 Married Couple’s Allowance (Wife) Couple where either the husband or wife were born before 6 April 1935 and the date of marriage is before 5 December 2005 and Allow half or whole of the minimum amount of the Married Couple’s Allowance (but not the age-related additions) to the wife. PAYE130025 - 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 - Marriage Allowance Couples must be married or in a civil partnership. One partner has an income of £12,500 or less. Spouse/civil partners income must be between £12,500 and £50,000 (£43,430 for Scottish taxpayers). Neither customer can already have a live MA application on their account. Neither customer can be in receipt of Married Couple’s Allowance (MCA) The recipient will receive 10% of their spouse/civil partners personal allowance. PAYE100060 Blind Person’s Allowance The individual is a registered blind person. Note: If the individual is unlikely to use all of this allowance in the current year, the excess can be transferred provisionally to his / her spouse or civil partner Allow the current year amount of Blind Person’s Allowance if the individual is registered blind and the amount of the allowance transferred to the individual form his / her spouse or civil partner Death, Sickness or Funeral Benefits - Allow: Friendly Society Subscriptions From 6 April 2013 individuals are no longer entitled to receive tax relief for these payments or subscriptions You will be unable to amend or enter amounts in IABD for Widows and Orphans payments for tax year 2013 to 2014 onwards PAYE130025 Trade Union Subscriptions Only the death or superannuation portion of the subscription is allowable. ½ of the allowable portion of the subscription Widows and Orphans From 6 April 2013 individuals are no longer entitled to receive tax relief for these payments or subscriptions You will be unable to amend or enter amounts in IABD for Widows and Orphans payments for tax year 2013 to 2014 onwards PAYE130025 Double Taxation relief Claimant liable at: Allow: - Basic rate Tax relief allowed for previous year grossed at the basic rate. Example: Tax relief £92. Allow 100/20 X 92 = £460 - Higher rates Tax relief allowed for previous year grossed at the highest rate of liability on all employments. Example: Tax relief £92. Estimated highest rate 40%. Allow 100/40 X 92 = £230 PAYE130025