All I can say about where I'm coming from is that one part of the Civil Service is forced by a particular regulation to use an accounting method that could be legally unsafe if it were to be challenged in court.
Maybe if you could explain this, I might be able to point you in the right direction.
The difficulty arises because as you have said these state benefits cannot be separated from employment income because they derive from employment income.
I have not said that. It is nonsense to suggest that social security payments and employment income are conjoined let alone inseparable.
It would have been nice to have had a 403 type construct which provides the separation I'm looking for but for obvious reasons this cannot apply to the benefits in question.
You have read one section and are clinging on to it even although it has nothing to do with social security payments or benefits. That is why I said you do not understand what you are being told. Part 10 (s655 to s681) covers social security payments and benefits. It sets out very clearly what is charged to tax and who is liable for the tax, and what is exempt from tax. You need to forget about s403 and read sections 655 to 681.
You may also want to read the Income Tax (PAYE) Regulation 2003 (Statutory Instrument 2003 No 2682) which covers the operation of PAYE and (at Part 8 (regulations 148 to 184)) how it applies to social security benefits.