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PAYE78100 | PAYE operation: taxation of jobseeker’s allowance: what the department for work and pensions does

From HM Revenue & Customs · PAYE Manual

The Department for Work and Pensions (DWP) operates a modified form of PAYE on taxable benefits, which are paid without deduction of tax. This is controlled through their own computer system (National Unemployment Benefit System) NUBS2. It works like this

  • Benefit claimant hands in their forms P45(2) and (3) to the Benefit Office

  • The P45(3) details are sent direct to the PAYE Service by NUBS2

  • Where the PAYE Service record cannot be updated automatically a Work List will be generated

  • DWP will carry out a tax table check on the earlier of

  • The end date of a benefit claim

Or

  • At 5 April for continuing claims

All taxable benefit paid is included in the tax calculation together with any cumulative pay details from previous employments

  • Any overpayment of tax is repaid

Or

  • Any underpayment is reported as a potential underpayment. Where a potential underpayment arises the form P45U or P14U shows the existing code on a Week 1 basis

  • A statement of taxable benefit is sent to the claimant

  • The DWP tells HMRC of any adjustments on form P180 subject to the limits of more than £40 for an increase or more than £7 for a decrease

When the claim to benefit ends

  • The DWP sends the claimant fresh forms P45(2) and (3)

  • Form P45(1)U information is sent by NUBS2 to the old office if known

  • The P45(1)U details are held on microfiche at the Central Liaison Unit

Where the benefit claim continues after 5 April

  • The DWP issues forms P14U and P60U at the end of the tax year

Where the P14U is not available for the end of year or P45(1)U for claims that have ceased in year

  • Write to the customer asking them to send in P60U or P45(1a) - if they do not hold them they should obtain details directly from Job Centre Plus to support a claim to repayment

  • In cases where the customer is likely to be underpaid do not attempt to try and reconcile early unless a request is made by the customer - PAYE Service will reconcile when all outstanding information is received

Individuals will pay tax at the England and Northern Ireland, Scottish or Welsh rate(s) depending on the individual’s residency status.

The Income Tax Residency Status screen on NPS will display ‘Scottish’ or ‘Welsh’ Taxpayer for the tax year where the individual is liable to pay tax at the Scottish or Welsh rate(s) and their tax code will have an S (Scottish) or C (Welsh) prefix.

Further information about Scottish tax is given at PAYE100035.

Further information about Welsh tax is given at PAYE100040.