How to Read Your Salaries Tax Computation: Decoding Codes and Figures on IR56B

The Inland Revenue Department (IRD) issued 2.87 million tax returns for the 2023/24 assessment year, with salaries tax accounting for the bulk of Hong Kong’s HK$345 billion in total tax revenue. For the 2025/26 fiscal year, the government has announced a 100% salaries tax waiver capped at HK$3,000 per case, a measure that will appear directly on the tax computation notices sent this quarter. Yet the most common mistake taxpayers make is not claiming the correct deductions—particularly the self-education expenses and home loan interest allowances—because they misread the codes printed on their IR56B forms. The IR56B, filed by every employer in Hong Kong for each employee, is the foundational document from which the IRD derives its assessment. Understanding its cryptic box numbers and code letters is not optional; it is the difference between paying the correct tax and overpaying by thousands of dollars.

What the IR56B Actually Tells the IRD

The IR56B form is the employer’s return of remuneration and pension, mandated under Section 52(2) of the Inland Revenue Ordinance (Cap. 112). Every employer must file it within one month of the end of each tax year—by 30 April for the year ended 31 March. The form contains 13 numbered boxes, each corresponding to a specific income or benefit category. The IRD uses these boxes to pre-fill the taxpayer’s annual return (BIR60) and to generate the salaries tax computation notice.

Box 1 to Box 4: The Core Income Data

Box 1 records total cash salary, including wages, commissions, bonuses, and director’s fees. Box 2 captures leave pay and long-service payments. Box 3 is reserved for backdated wages or arrears of salary, which can arise from retrospective pay adjustments or unresolved labour tribunal awards. Box 4 contains the total amount of any pension or annuity received from the employer.

The critical point is that Box 1 is not the same as assessable income. For 2023/24, the IRD allows a basic allowance of HK$132,000 for a single person and HK$264,000 for a married person. If Box 1 shows HK$500,000, the assessable income starts at HK$368,000 after the basic allowance, before any other deductions. Taxpayers who fail to cross-check Box 1 against their own payslips often discover errors only after the assessment is finalised.

Box 5 to Box 7: Benefits-in-Kind and Perquisites

Box 5 records the value of accommodation provided by the employer. The IRD values this at 10% of total assessable income from the employer (including the accommodation benefit itself), unless the taxpayer elects to use the actual rental value paid by the employer. Box 6 captures share option gains crystallised during the year, valued at the difference between the market price on exercise date and the exercise price. Box 7 is the catch-all for other perquisites—company cars, club memberships, education subsidies for children.

A common trap: Box 7 often includes employer-paid premiums for voluntary health insurance that is not a recognised MPF contribution. These premiums are fully taxable unless the policy qualifies as a “recognised retirement scheme” under Section 2 of Cap. 112. Most private hospital plans do not qualify.

Box 8 to Box 13: Deductions and Contributions

Box 8 records mandatory MPF contributions made by the employee. For 2023/24, the maximum deductible MPF contribution is HK$18,000 (5% of HK$360,000 maximum relevant income). Box 9 captures voluntary MPF contributions, which are also deductible up to the same aggregate cap. Box 10 is for employer’s MPF contributions, which are not taxable to the employee.

Box 11 is the most frequently misunderstood field. It records “retirement scheme contributions” that are not MPF—for example, contributions to an occupational retirement scheme registered under the Occupational Retirement Schemes Ordinance (Cap. 426). These are deductible only if the scheme is recognised by the IRD. Box 12 shows any refunds of MPF contributions from a previous employment, which are taxable in the year received. Box 13 is the total of all boxes, which the IRD uses as a check digit.

Decoding the Assessment Notice Codes

Once the IRD processes the IR56B data, it issues a salaries tax computation notice. This document contains a series of codes—letters and numbers—that indicate how each item was treated. The codes are defined in the IRD’s internal Taxpayer’s Guide to Assessment Notices (2024 edition), which is not publicly circulated but can be inferred from the standard notice layout.

Code A: Assessable Income from Employment

Code A appears next to the figure taken from IR56B Box 1. If the taxpayer has multiple employers in the same tax year, Code A1, A2, and A3 designate each employer’s income stream. The IRD aggregates these into a single assessable income figure. A mismatch between Code A figures and the taxpayer’s own records is the most common trigger for an IRD enquiry, which can extend the statute of limitations under Section 60 of Cap. 112 from six years to ten years if the IRD suspects fraud.

Code B: Allowances and Deductions Claimed

Code B is appended to each allowance or deduction claimed on the BIR60. For example, B1 is the basic allowance, B2 is the married person’s allowance, B3 is the child allowance (HK$130,000 per child for 2023/24, with an additional HK$130,000 for the year of birth), and B4 is the dependent parent allowance (HK$25,000 per parent aged 60 or above, rising to HK$50,000 if they live with the taxpayer). Each Code B entry must be supported by a declaration on the BIR60.

The IRD cross-checks Code B entries against the IR56B data. If a taxpayer claims a dependent parent allowance but the IR56B shows the parent’s income exceeding HK$12,000 per year, the claim is automatically rejected. This is a mechanical check performed by the IRD’s computer system, not a manual review.

Code C: Tax Rebates and Waivers

Code C appears for any statutory tax reduction. For 2023/24, the government granted a 100% salaries tax waiver capped at HK$6,000 per case. For 2024/25, the cap dropped to HK$3,000 per case. Code C1 indicates the waiver amount applied to the current year’s tax, while Code C2 shows any carry-forward of unused waiver from the prior year. Taxpayers who see Code C2 should verify that the carry-forward amount matches the previous year’s notice.

Common Errors and How to Spot Them

The IRD’s own Annual Report 2023-24 noted that 12.4% of all salaries tax assessments required a correction or adjustment after the initial notice was issued. The majority of these errors stem from three categories: misreported benefits-in-kind, incorrect MPF deduction caps, and failure to claim allowances that were available.

The MPF Cap Trap

The maximum deductible MPF contribution for 2023/24 is HK$18,000. However, if a taxpayer changes jobs mid-year and makes MPF contributions to two different schemes, the total deduction cannot exceed HK$18,000. The IRD’s computer system automatically caps the deduction at this figure, but the IR56B from each employer will show the full contribution made to that scheme. A taxpayer who simply adds the two Box 8 figures will overstate the deduction. The correct approach is to enter the lower of HK$18,000 or the total contributions on the BIR60.

Taxpayers earning above HK$360,000 per year—the maximum relevant income level for MPF—should check that Box 8 shows exactly HK$18,000. If it shows less, the employer may have made an error. If it shows more, the excess is a voluntary contribution that must be claimed separately in Box 9.

The Home Loan Interest Deduction

Home loan interest is deductible up to HK$100,000 per year for 20 tax years, under Section 26E of Cap. 112. The IR56B does not capture this deduction; it must be claimed separately on the BIR60. The most common error is claiming interest on a mortgage for a property that is not the taxpayer’s principal place of residence. The IRD defines “principal place of residence” as the property where the taxpayer ordinarily lives, and it must be located in Hong Kong. A taxpayer who owns a flat in Sheung Shui but lives in a rented apartment in Central cannot claim the interest on the Sheung Shui mortgage.

The IRD cross-checks home loan interest claims against the property’s rating and valuation records. If the property is rented out, the claim is disallowed. If the taxpayer moves during the year, the interest is apportioned.

The Self-Education Expenses Deduction

Self-education expenses are deductible up to HK$100,000 per year, under Section 12(1)(g) of Cap. 112. The deduction covers course fees, examination fees, and the cost of prescribed textbooks. It does not cover travel, accommodation, or living expenses. The IR56B does not capture this deduction; it must be claimed on the BIR60 with supporting receipts.

A common error: claiming expenses for a course that is not “prescribed” by the IRD. A prescribed course is one that leads to a qualification recognised by the Hong Kong Council for Accreditation of Academic and Vocational Qualifications (HKCAAVQ) or by a professional body approved by the IRD. A weekend seminar on cryptocurrency trading does not qualify, even if the taxpayer is a financial analyst.

Actionable Takeaways

1. Cross-check Box 1 on your IR56B against your final payslip for the tax year, and flag any discrepancy to your employer before the IRD issues the assessment.
2. If you changed jobs during the year, manually cap your MPF deduction at HK$18,000 on the BIR60 rather than adding the two Box 8 figures.
3. Claim home loan interest only for your principal place of residence in Hong Kong, and keep the mortgage statement showing the interest paid for the full tax year.
4. For self-education expenses, confirm that the course is prescribed by the HKCAAVQ or an approved professional body before claiming the deduction.
5. Retain all IR56B forms and BIR60 returns for at least seven years, as the IRD can reopen assessments under Section 60 of Cap. 112 within six years of the assessment date.

本文不構成稅務建議。涉及個人稅務情況請諮詢持牌會計師或稅務師。 / This does not constitute tax advice. Consult a licensed CPA or tax advisor for your specific situation.