PAYE72058 - PAYE operation: payments for PAYE purposes: accidents: net advance refunded (Action Guide)
If you receive a tax repayment claim from an employer or an
enquiry from an employee where an advance of pay has been paid to
an employee involved in an accident and the
net advance has been refunded to the employer,
follow steps 1 – 3 below as appropriate
The guide is presented as follows
| Refund of net advance made in same tax year | Step 1 |
| Refund of net advance made in later tax year | Steps 2 - 3 |
Refund of net advance made in same tax year
If a refund of the net advance is made by the employee in the same tax year
- Advise the employer to
- Reduce the employee’s gross pay on the Deductions Working Sheet by the gross amount of the advance (which was previously taken as taxable)
- Reduce the tax figure on the Deductions Working sheet by the tax deducted from the advance
- Recover the tax deducted from the advance from the next payment to Debt Management by the same figure
- Make a note for accounting purposes for submission of the end of year P35 return
Refund of net advance made in later tax year
Where refund of the net advance is made by the employee in a tax year after the year of the advance
- Repay to the employer the tax deducted from the advance
If the employee only refunds a percentage of the advance to the
employer, for instance if the full claim for damages is not paid,
the repayment of tax to the employer should be based on the same
percentage.
For example – If the employee refunds 75 per cent of
the net advance, the repayment by HMRC to the employer should be 75
per cent of the tax deducted from the advance.
- Tell the taxpayer to include in their self assessment
- The figure of pay as shown on form P60, less the gross amount of the advance
- The figure for tax deducted as shown on form P60 less the tax repaid to the employer (the employer should provide this figure to the employee)
- If the employee has already filed their SA return then invite them to amend the Employment pages on the return based on the above points
