PAYE13040 - coding: coding: general principles: coding and self assessment

The procedures for dealing with claims in SA depend upon whether or not a claim is included in a return.

Advice on the following is available

Accepting or refusing claims

Claims carried forward or issued before tax year

Claim included in return

Claim not included in return

Enquiries: what is enquiry

Enquiries: what is not enquiry

In-year claims and claims in returns

Later action

Receiving claim

Updating the PAYE code

Accepting or refusing claims

If, having considered the responses to your questions, you decide you can give effect to the claim

• Amend the code

And

• Advise the taxpayer in writing that your enquiry is complete. Your letter should incorporate the following wording

‘On ... I gave you notice of my intention to make enquiries into your claim for .... My enquiries are now complete and your code for 20-- -20-- has been adjusted to give effect to the claim'.

Where you decide the claim can be given effect to, but entitlement depends in part upon information not known at the time, for example

• An age-related allowance based upon income for the year of the coding allowance

Or

• An amount paid for the year which cannot be finalised until after the end of the year
• • Make it clear that the amount coded is provisional and the matter may be adjusted after the tax year has ended

If you decide to refuse the claim you should not alter the code.   You should follow the advice in the Enquiry Handbook at EH949. You should issue a notice of completion asking the taxpayer to withdraw the claim. Where the taxpayer does not respond within 30 days or does not accept your decision you should then write to the taxpayer formally refusing the claim. The taxpayer can then appeal - see EH952.

Claims carried forward or issued before tax year

This advice is relevant only to non-SA taxpayers, as SA taxpayers will always make formal claims in their tax returns to cover claims carried forward automatically or put into codes issued before the start of the tax year.

As the law stands, claims carried forward automatically, or incorporated into the code before the start of a tax year on the basis of preliminary information given by the taxpayer, do not become final until 22 months after the end of the tax year. HMRC is entitled to enquire into such claims at any time up to 5 years 10 months after the end of the tax year.

This position will continue to apply where

• A code for one tax year is simply applied for the next year and the taxpayer has provided no information for the later year

And

• You discover at a later date that the adjustments for claims in the code were not due or the amounts were excessive

Or

• You discover that any preliminary information given by the taxpayer was incomplete or misleading

However, outside of these cases, once 22 months after the tax year has elapsed, you should

• Not issue tax returns or other forms as a matter of routine to check claims details in codes for the tax year
• Look only at cases where information comes to hand which suggests there has been incomplete disclosure or fraudulent or negligent conduct

These procedures are intended to give taxpayers who do not normally get tax returns the same finality arrangements as those which apply to those who do get returns.

Claim included in return

Where a claim is included in a return HMRC may

• Use the normal SA enquiry procedures for returns to check the validity and accuracy of the claim
• Check the claim on its own, or include any such enquiry in a general review of the whole return

Claim not included in return

As for returns, HMRC has a formal right to make enquiries into the accuracy of any claim and as with returns, a ‘process now - check later' scheme will apply to any claim not in a SA return. The Enquiry Handbook has a chapter ‘Claims Made Outside A Return’ setting out detailed procedures. The scheme will apply to any claim made in a tax year where the in-year code gives effect to the claim by a PAYE coding adjustment.

The intention is to keep PAYE codes as accurate as possible. So they should not be adjusted because of claims unless relief is due. Claims should be considered in the normal way to decide whether or not relief is due. Care is required when subjecting a claim to closer scrutiny to avoid opening an inappropriate enquiry.

Enquiries: what is enquiry

If you receive anything in writing from a taxpayer about a claim and a possible alteration of a code, with sufficient information to enable you to process the claim, but you decide to ask questions before amending the code, you should formally advise the taxpayer you are enquiring into the claim.

‘Sufficient information' is enough information for you to know which allowance or relief is being claimed and in what amount.

EH945 gives guidance on letters for opening enquiries for both represented and unrepresented taxpayers.

Enquiries: what is not enquiry

If a taxpayer telephones or calls at the counter about a claim and, to decide whether relief is due, questions are asked or further information is sought, that does not count as an enquiry.

If you decide relief is due

• Amend the code and take no further action

If you decide relief is not due but the taxpayer wishes to press the point

• Ask the taxpayer to make a written claim and then open an enquiry as explained below

If a written claim is received but it is incomplete because some information such as that needed to quantify the claim is missing and you cannot therefore process it, a request for information is not an enquiry. For example, a taxpayer may write in to claim the Married Couple's Allowance but omit to tell you the date of marriage. A request for the date is not an enquiry into the claim.

In-year claims and claims in returns

In-year claims, or claims made in a return issued shortly after the end of a tax year, will all normally become final at the same time. That is, at the first anniversary of the 31 January filing date after the end of a tax year (almost 22 months after the end of the tax year) unless an enquiry has been opened.

Later action

Once you have accepted a claim following an enquiry you cannot revisit the decision (except for adjusting provisional amounts) unless you subsequently

• Get further information which leads you to believe you can make a discovery, in which case you should refer the case to a technical caseworker

Or

• Become satisfied that there has been fraudulent or negligent conduct on the part of the taxpayer

So if, for example, you have enquired into a claim for 2003-04 and it is repeated in the SA return issued in April 2004 you cannot enquire into that aspect of the return (other areas of the return are not affected). However, if you have granted the claim without an enquiry but subsequently decide the decision was wrong you may open an enquiry provided it is opened before 31January 2006.

Where it is not an SA case the matter can be dealt with as a normal enquiry into a claim not in a return. However, if the taxpayer has been asked to, or will be asked to, self- assess for, say 2003-04, any decision as to whether or not to open an enquiry should be made as part of the general decision as to whether or not to open enquiries into the SA return.

Receiving claim

When a claim is received

• Examine it to decide whether or not you consider relief is due
• Amend the code if you consider the claim is correct
• Give provisional relief in the code where the exact amount cannot be determined until after the year end (for example, the actual amount of interest paid in a year)

If a provisional code is given

• An SA taxpayer will subsequently provide claims information in the return for the year

And this will be taken into account in the calculation of the self assessment

• A non-SA taxpayer should be asked to provide the correct amount when it is available so that you can take this into account in any informal calculation that you issue for the year

Updating the PAYE code

The code must be updated in all cases (except for CY-1 or earlier leavers) after a return is captured. Further information can be found in subject ‘The Coding Integrity Check’ in section ‘Individuals Returns’ in the ‘Returns’ business area of the Self Assessment Manual.