ECH22540 - Yield Recording: Current and Open Year Adjustments
The ECO should always advise the employer on making adjustments
at the earliest possible moment.
If there is a delay in advising the employer on making an
adjustment the reason(s) should be well documented on the case.
Current Year Adjustment
An EC review has only
one current year, the year in which the review
commenced (
ECH9005). Employer adjustments made in
that year should be claimed and extrapolated to reflect a full year
(
ECH9045).
A current year adjustment can only be claimed if an
irregularity has been identified which will be corrected to ensure
that the return will be correct.
Example 1
The ECO identifies a benefit which has only been available to
the employee in the current year. The P11D is not yet due therefore
no irregularity has arisen. The ECO advises the employer that the
benefit must be returned on P11D. The ECO cannot claim the tax due
on the benefit as a current year adjustment.
Example 2
The ECO establishes that an employee has been provided with a
car for the past three years but the benefit has not been reported
on P11D. An irregularity has arisen. The ECO can claim the tax for
the earlier years and a current year adjustment.
Example 3
Payment of bonuses at irregular intervals has resulted in a
greatly reduced NIC liability. A Regulation 31 Direction has been
invoked for a future year. No irregularity has arisen. The ECO
cannot claim a current year adjustment.
Example 4
The ECO identifies payments of round sum allowances. The
practice only began in the current year. The employer is unable to
demonstrate business expenditure for the full amount. The ECO
advises the employer that the ‘profit’ element should
be included in gross pay. An irregularity has arisen. The ECO can
claim a current year adjustment.
Where an ECO identifies underpayments in remittances to HMRC
the underpayment should be quantified and a referral made to
DM&B along with any payment obtained. The ECO cannot claim for
current year tax and NICs which has been deducted but not paid to
HMRC except where no PAYE scheme exists (
ECH22515) or a return has been
outstanding for 12 months or more (
ECH22520).
Open Year Adjustments
Where irregularities are identified for an open year the
employer should be advised to make adjustments so that a correct
return is submitted (
ECH9050).
Where, exceptionally, open year irregularities are included
in a settlement the ECO should claim
- all tax and NICs included in the settlement,
- all interest included in the settlement,
- all penalties included in the settlement,
In a long running review it is possible that an issue may not be resolved in time for an employer to adjust records before returns for subsequent years become due. The ECO must
- not encourage an employer to delay or fail to submit returns and,
- if an employer expresses this intention make the penalty situation clear to them – ECH21020 and ECH21025,
Where an employer has submitted returns which later turn out to be incorrect the ECO should
- collect any underpayment by Class 6 settlement,
- advise the employer to make adjustments for the year in which the issue is resolved,
- calculate the underpayment up to the time that the adjustment was made and estimate the underpayment for the remainder of the tax year ( ECH9045),
- consider penalties in accordance with ECH21040 (care should be taken when considering negligence as it may have been reasonable for the employer to delay payment until the matter was resolved ECH9040),
- claim all the tax, NICs, interest and penalty on ECS,
- claim the amount of the adjustment for the year in which the issue is resolved as a current year adjustment on ECS.
If the employer has delayed in submitting the returns and the years remain open the ECO should
