PAYE93036 -Reconcile individual: end of year reconciliation: tax calculation issues
When preparing a tax calculation for issue or, reviewing a calculation that has already been issued, you should be aware of the following issues
Underpayments and overpayments
Chargeable Event Gain: effect on the Total Income figure
Maintenance Payments: effect on the Tax Due figure
Non refundable tax credits: effect on the Tax Due figure
Concessional Relief
National Insurance Benefits - State Pension
Trustees in Bankruptcy
Individual Bankruptcy cases
Investment Income - general
Investment Income - Taxed Investment Income carried forward
Other Income (Earned)
P11D Benefits
Van Fuel Benefit
Pension Payments - Retirement Annuity payments
Multiple periods of employment with the same employer in the same year
Underpayments at April 2008
Deceased cases
Gift Aid
P11D: COP migration recording benefits in kind against wrong employment
Trusts, Settlements and Estates income at savings rate
Notional Tax Credit Relief
NT coded P14
P14: Incorrect Pay figure
Under / overpayment reasons
Married Couple’s Allowance
No Allowances indicator: Effect on batch reconciliation
Missing Employments
Underpayments and overpayments
Where a Tax Calculation includes an underpayment or overpayment from an earlier year and / or it includes an underpayment or overpayment to be carried forward to a later year and you need more information about the amount concerned, you will need to review the customers Accounting (PAYE98000) records.
Chargeable Event Gain: effect on the Total Income figure
Although Chargeable Event Gains are taken into account in the Total Income field within the Tax Calculation screen (and are charged within the calculation), they do not appear in the Total Non Savings Income field or, within the Total Non Savings Income screen itself. For example, where a chargeable gain of £10,000.00 for the year has been included in the calculation and other income in the year totalled £20,000.00 the relevant fields of the Tax Calculation screen will show
| Total Non-Savings income | 10,000.00 |
| Total Savings income | 10,000.00 |
| Total income | 30,000.00 |
(The two income fields actually add up to £20,000.00. However, as the tax calculation takes the £10,000.00 Chargeable Event Gain into account, the Total Income is shown as £30,000.00 (£20,000.00 plus £10,000.00).
Details of the Chargeable Event Gain (along with any tax credit given in respect of it), can be viewed in the Investment screen within IABD and you may need to do this where you are trying to verify whether or not a tax calculation is correct.
There will be circumstances where a Chargeable Event has occurred and due to the level of non savings income the savings starting rate is available to utilise against the event. The Tax Calculation does not include the event within the total savings income and therefore this may lead to incorrect rate allocation. The tax deducted from the chargeable event is notional and not available for repayment however there may be other savings tax deducted available for repayment. In these circumstances only where a case is identified, to ensure that the event is charged at the savings starting rate but the tax deducted is not refunded, the event should be recorded in the investment screen within IABD as Foreign Dividends (along with any tax credit) for the year of reconciliation only and an appropriate Contact History note added.
Chargeable Event Top Slicing relief for higher rate cases is calculated and included within the Tax Calculation from information entered within IABD, PAYE130060 refers. However where multiple Chargeable Events occur in the same tax year and the number of years for the chargeable event differ, the correct amount of relief will not be calculated. In these circumstances where:
Customer is liable to higher rate tax
A self assessment return should be issued for the year in which the Chargeable Events arose. The self assessment record should be made dormant immediately by setting the ‘Last year return required for’ signal in Self Assessment.
Customer is subject of reduced age-related allowance
A self assessment return should be issued for the year in which the Chargeable Event arose. If reduced age-related allowance only applies for the year in which multiple gains occurred, then the self assessment record should be made dormant by setting the ‘Last year return required for’ signal in Self Assessment.
Customer is liable to basic rate tax only
Record the Chargeable Event through IABD, PAYE130060 refers, add together the total gains, enter the figure in IABD along with the total number of years as 1. No Top Slicing Relief will be due in these cases; make a Contact History note to record the action taken.
Maintenance Payments: effect on the Tax Due figure
Although relief due for Maintenance Payments is taken into account in the tax calculation, you will not be able to see details of the payments themselves within the Tax Calculation screen or the reconciliation screens (for example the Total Tax Chargeable screen) you can access from it. For example, where an individual is due relief (at 10 per cent) on payments of £2440 the Tax Calculation screen will show
| Total Income Tax Due | 2,000.00 |
| Total Tax Paid | 1,000.00 |
| Underpaid | 756.00 |
(The difference between the tax due and the tax paid is £1,000.00. However, as the tax calculation takes the relief due in respect of the Maintenance Payments into account, the underpayment is £756.00 (£1,000.00 minus £244.00)).
Details of the Maintenance Payments can be viewed in the Allowances screen within IABD and you may need to do this where you are trying to verify whether or not a tax calculation is correct.
Non refundable tax credits: effect on the Tax Due figure
Although non-refundable tax credits (Foreign Tax Credit Relief, Widows and Orphans Relief and Tax Credits on Dividends) are taken into account in the tax calculation, you will not be able to see details of the payments themselves within the Tax Calculation screen. For example, where an individual has £200.00 non-refundable tax credit the Tax Calculation screen will show
| Total Income Tax Due | 2,000.00 |
| Total Tax Paid | 1,000.00 |
| Underpaid | 800.00 |
(The difference between the tax due and the tax paid is £1,000.00. However, as the tax calculation takes the non-refundable tax credits into account, the underpayment is £800.00 (£1,000.00 minus £200.00)).
Details of the non-refundable tax credits can be viewed in the Total Tax Chargeable screen and you may need to do this where you are trying to verify whether or not a tax calculation is correct.
Concessional Relief
Details of items to look for where Concessional Relief is due / given in a tax calculation can be found at PAYE93090.
National Insurance Benefits - State Pension
IABD Start Date
SPD 6g.3 advises you to enter the start date and State Pension with a frequency of weekly / monthly for CY.
Once the information has been submitted, IABD summary will show State Pension as frequency type annual with the estimated NIB box ticked. This will allow the PAYE Service to calculate the actual State Pension due for the year at end of year reconciliation.
Lump Sum deferral
Where a customer defers receipt of their State Pension (PAYE94090), whilst any lump sum payment that they subsequently receive is charged correctly within the tax calculation itself, details of the payment concerned are not displayed in the Total Income or Total Savings Income fields in the Tax Calculation screen. Details are however displayed in the Total Tax Chargeable screen in which the rate(s) at which the payment is charged to tax is shown and you may need to refer to this information whilst reviewing a tax calculation.
Note: For the purpose of charging the lump sum to tax, the figure used within the tax calculation (and any tax credit given in respect of it) is derived from the P14 details submitted for the year (This text has been withheld because of exemptions in the Freedom of Information Act 2000).
Trustees in Bankruptcy
Annuities paid to a trustee of a bankrupt individual are taxable at the basic rate but do not form part of the taxable income of the bankrupt individual. However, there are instances where the payer of the annuity has incorrectly submitted a P14 in respect of the payment with the name and National Insurance number of the bankrupt individual on it. The PAYE Service is unable to distinguish any such forms P14 from those for genuine ‘employments’ and where this is so the annuity will have incorrectly been included in the tax calculation of the bankrupt’s liability. Where you become aware of this in day to day work or, as a result of an enquiry about a calculation that has already been issued, you will need to rectify the situation as follows
- Prepare and issue a free hand letter to the annuity payer informing them
- To continue to operate code BR in respect of the annuity
- That, as the annuity has passed to someone other than the individual, on future forms P14 they should
-
- Leave the National Insurance number blank
- Enter the gender as ‘Male’
- Enter the forename as ‘RP’
- Enter the surname with the name of the non individual
- Delete the annuity ‘employment’ (PAYE64016)
- Reconcile / re-reconcile the case
- Update Contact History with details of the action taken
Individual Bankruptcy cases
NPS is unable to deal with the year of bankruptcy for PAYE cases where the year is split between the pre and post bankruptcy period and there is tax liability post date of bankruptcy not attributed to operation of code NT.
Where a record has already been set up in SA to deal with the year of bankruptcy or SA criteria is fulfilled, the case will remain in SA.
When notification of bankruptcy is received the only cases which should be set up in SA for the year of bankruptcy are where
- There is SA Criteria
And / or
- There is outstanding tax liability for the post bankruptcy period to the end of the year of bankruptcy
The year of bankruptcy for these cases should be dealt with on NPS by settling the year to ‘Reconciled - SA’.
PAYE13062 and PAYE13063 advises you on coding action and steps to take to update the record.
Where the case does not meet the SA criteria, you should review and reconcile pre bankruptcy years on NPS as necessary, any resulting overpayments should be dealt with in accordance with INS9307, any underpayments should be recorded as Revenue Loss type 2 and Insolvency Claims Handling Unit (ICHU) advised of the debt using the standard template.
The Inhibit automatic reconciliation indicator should be set for the year of bankruptcy.
Investment Income - general
Where the correct investment income details are held for the year but they appear to have been charged incorrectly in a tax calculation, it may be that the income concerned was not entered into IABD correctly. That is, in accordance with PAYE130060 or carried forward from an earlier year and is not the actual amount received for the year of reconciliation. You should check to see if this is so before a problem about how investment income has been charged in a tax calculation is reported and where it is determined that the figures in IABD were not entered correctly, you should
- Re-enter them in accordance with PAYE130060
- Reconcile / re-reconcile the case
- Update Contact History with details of the action taken
For cases where the customer has received an incorrect tax calculation / repayment due to taxed investment income from an earlier year being carried forward into the calculation, see ‘Investment Income - Taxed Investment Income carried forward’ below.
Investment Income - Taxed Investment Income carried forward
Although taxed investment income in tax calculations will usually be correct and / or it will not adversely affect the outcome of the calculation, this will not be so where the customer is not liable to tax and an incorrect tax calculation / repayment (based on an earlier years taxed investment income) has been issued.
Where you become aware of this, for example as a result of a customer enquiry, to correct the case you should follow the actions at
- Steps 1 - 5 below where the customer returns the original payable order with their correspondence
- Steps 3 - 5 where they do not
| 1. | Arrange for the payable order to be cancelled in accordance with PAYE91011 |
| 2. | Wait for confirmation that a fresh payable order can be issued |
| 3. | Update IABD for the year with details of the correct taxed investment income and re reconcile the year |
| 4. | Update IABD for CY / CY+1 to include the taxed investment income as non-coded income. This will ensure that both coding is correct and also that taxed investment income will not create a future problem when the year concerned is reconciled. Use Form Type ‘Other Form’ and select the [Submit] button to trigger an automatic tax code calculation |
| 5. | Update Contact History with a note of ‘YY/YY Taxed Investment Income recorded in YY/YY IABD as Non-Coded Income’ |
Other Income (Earned)
Where a tax calculation contains ‘Other Income (Earned)’ as it is recorded in IABD for the year and the employer concerned subsequently submits a P14 in respect of the same source of income, the income concerned will incorrectly be duplicated within the calculation. During the course of reviewing a tax calculation with Other Income (Earned) within it, you should check to see whether the income concerned has been duplicated as a result of a P14 being submitted.
Where the income
- Has not been duplicated, continue to check the calculation with a view to approving it for issue
- Has been duplicated
-
- Update IABD for the year(s) concerned to remove the income
- Review and update the customer’s CY and/or CY+1 tax code(s) as required
- Re-trigger the appropriate reconciliation(s) and review / approve them for issue
P11D Benefits
P11D benefits included in IABD are only picked up and included in a tax calculation where the ‘Form Type’ associated to the figures concerned is ‘P11D’ or ‘P11D (MANUAL)’ (PAYE93010). You will need to be aware when reviewing tax calculations and where known benefits are not being picked up in calculation you will need to
- Follow the instructions at PAYE130040 (or in the case of years to 2007-08 inclusive where you are required to rebuild a record, PAYE96280) to update / correct the record
- Re-trigger the appropriate reconciliation(s)
Van Fuel Benefit
Where a tax calculation includes Van Fuel Benefit this benefit will be included in the calculation under the Benefits in Kind descriptor.
Pension Payments - Retirement Annuity payments
Retirement Annuity payments allowed within a tax calculation display in the Total Deductions field in the Tax Calculation screen and, as Gross Pension Payments in the Total Deductions screen. Selecting the View Record icon next to the Gross Pension Payments field should take you to the IABD Allowances screen (to enable you to drill down for further information) but, due to a design issue it currently takes you to the IABD Pension screen. However, you can access the IABD Allowances screen directly from within IABD and you should do this where you require full details of the pension payments included in a tax calculation.
Multiple periods of employment with the same employer in the same year
Where a customer has a number of periods of employment with the same employer in the same year and they submit forms P14 for each period under the same reference and with the same works number, the end of year reconciliation tax calculation only takes the P14 into account that has a start date on it matching with the start date held on the customers employment record. Where you become aware of this in your day to day work or, as a result of an enquiry about a tax calculation that has already been issued, you will need to update the customer’s record to include the ‘missing’ employments and re reconcile the year to include them in the tax calculation. To do this
- View the P14 Summary screen for the year and make a record of the missing P14 / employment details
- Create employment records (PAYE61000) for the missing employments
- Capture the missing P14 information as P60’s
- Re-reconcile the year
Note: You will need to update Contact History (PAYE105001) as appropriate when following the steps above.
Underpayments at April 2008
Where an underpayment was collected during 2007-08 or earlier by inclusion in the customer’s PAYE code, in a small number of cases a payment record (receipt) for the amount concerned was not created when details were migrated to the PAYE Service. As a result the PAYE Service treats the underpayment as still being outstanding at April 2008 and brings it forward into the 2008-09 tax calculation. The issue effects underpayments brought forward at April 2008 only and where a customer’s record shows such an underpayment, you will need to review the latest code issued in each year up to and including 2007-08 to see whether it is genuine or, whether it has already been collected through coding. Where the underpayment
- Has not already been collected through coding, it is genuine and you will need to leave it in the 2008-09 calculation
- Has already been collected through coding, it is one of the erroneous underpayments caused at migration and you will need to remove it from the customer’s record before you continue to review 2009-09. To do this
-
- Select the [Cancel] button to abort the 2008-09 tax calculation. Details of the calculation concerned will be retained
- Record the whole of the April 2008 erroneous underpayment as a Type 15 Revenue Loss. This is done to remove the underpayment from the customer’s record only and the amount concerned should not be included in any report(s) required of Revenue Loss cases
- Re-reconcile 2008-09
Note: You will need to update Contact History (PAYE105001)as appropriate when following the steps above.
Deceased cases
For deceased cases, unless you have already adjusted amounts recorded within IABD, tax calculations for the year of death may include incorrect details. For example, in the case of National Insurance Benefits the calculation may include a full year’s benefits as opposed to an apportioned amount to the date of death.
You should take care when reviewing tax calculations for deceased cases and where you notice that incorrect details are included in calculation you should
- Amend the figure(s) concerned
- Reconcile / re-reconcile the year
- Update Contact History with details of the action taken
Gift Aid
The following gives details as to how Gift Aid payments are dealt with within tax calculations.
Where an individual has no liability to tax, the PAYE Service will recover the basic rate tax in the calculation. See PAYE11115 and PAYE130030 for guidance in these cases.
Where an individual has liability to pay tax at higher rate, further relief is given in the tax calculation by extending the basic rate band. The PAYE Service will ‘Gross up’ the amount entered in IABD.
Guidance in PAYE80032 should be followed when a claim to Gift Aid is received, see PAYE130025 for IABD entries to make.
Where an underpayment or overpayment is created, by selecting the [Submit] button on the Tax Calculation screen you will be taken to the Reasons (for underpayment or overpayment) screens.
You will then need to input the reason as Gift Aid Payment of £XX.XX and select the [Submit] button so that the calculation will be prepared by the system for issue.
If this reason is not sufficient, you need to issue a letter with a full explanation to the customer.
P11D: COP migration recording benefits in kind against wrong employment
At migration, if the COP tax code included benefits in kind in the main source record which related to the sub source employment, these will have migrated but are recorded in IABD against the primary source. In your day to day work or if you need to review a 2008-2009 underpayment, you need to check that the benefits are recorded against the correct employment and amend any to zero which are incorrectly recorded against the primary source.
Trusts, Settlements and Estates income at savings rate
There is no specific field to enter Trusts, Settlements and Estates income at the savings rate or non-refundable dividend rate.
Any trust income
- Which is taxed at the savings rate
And
- Qualifies for the starting rate for savings
must be entered in the individual’s investment income as bank and building society interest.
You must
- Enter the gross, net and tax figures
And
- Make a full note in Contact History
Any trust income
- Which is taxed at the dividend rate
And
- Is non-refundable
must be entered in the individual’s investment income as UK dividends.
You must
- Enter the gross, net and tax figures
And
- Make a full note in Contact History
Notional Tax Credit Relief
There is currently no facility through the PAYE Service to record or give a notional tax credit.
In cases where the following apply a non-refundable tax credit can be given to reduce the tax underpaid
- Net of tax arrangements as set out in PAYE82001 (EPAPP5)
- Reg72(5) and 81(4) (PAYE90020 and SPD 60) provided a PAYE direction is held authorising a credit under regulation 185/188
- ESCA19 - where you are not remitting the whole amount of tax underpaid (PAYE95010)
Before any action is taken on the case, ensure all appropriate information for the year is held to update IABD.
To give a notional tax credit in PAYE Service you should
- Update IABD landing PAYE130020 with all appropriate information
- In IABD select Foreign income
-
- Drill down against foreign pension
- In the Foreign pension income field enter 1
- In the Foreign Tax credit box enter the tax figure that you are giving credit for
- Save
- In IABD select expenses
-
- Job expenses enter 1
- Save
- Submit
- Make a clear Contact History note to say how much foreign tax credit was given and what this relates to
- Reconcile the year
Note: The foreign pension figure of ‘1’ has to be entered for the entry to appear in IABD summary, if the box is left blank no entry will be shown in IABD summary, the expense figure of ‘1’ is only given to reduce the pension figure entered.
When you view the reconciliation for the year, the foreign tax credit will not appear in the calculation on screen but will reduce the tax chargeable figure for the year.
Subsequent review of a customers liability leading to the removal of the notional tax credit for example: Foreign Tax refunded (PAYE82001) (EPAPP5) - the entries made in the foreign pension field, foreign tax credit and expenses fields shown above should be removed and the year re-reconciled.
NT coded P14
NPS was enhanced with effect from April 2011 to either
- Disregard NT coded forms P14 from the reconciliation process where the code concerned was operated correctly
Or
- Create work item 438 (PAYE93055) to allow the case to be manually reviewed where the code concerned was operated incorrectly
Prior to the enhancement, NT coded forms P14 were included in the reconciliation process and for cases where this should not have been so, where the inclusion of the P14 details resulted in an incorrect underpayment calculation, you were advised to correct the position by giving a Notional Tax credit to cover the NT element of the underpayment. You will need to be aware of this and where a case that previously had an NT coded P14 included in it is re-reconciled, you will need to proceed as follows
- For cases where the re-reconciliation now disregards the P14, amend the calculation to remove any Notional Tax credit previously given in it in respect of the NT underpayment
- Where work item 438 (PAYE93055) is created, in dealing with the work item, follow the guidance at PAYE92046 to update the tax calculation to include the appropriate NT Pay / Tax details
P14: Incorrect Pay figure
During the course of reviewing a tax calculation to be issued, or when reviewing one as a result of a customer enquiry, you may become aware that the pay details reported by an employer on form P14 are incorrect. A known instance of this, is where the employer inadvertently places the decimal point incorrectly within the pay figure (in which case, for example, pay received of £30,000.00 may show as £3,000,000.00 on the P14). To correct the case and ensure that the correct pay feeds through to the customer’s record you will need to proceed as follows to obtain an amended P14 from the employer concerned
- Contact the employer in accordance with step 9 of PAYE46036
- Manually BF the case for 6 weeks to allow the amended P14 to be submitted and processed. On reaching the customer’s record, the year concerned will automatically be re reconciled to include the amended, correct amount of pay
- On BF, review the tax calculation to ensure that it now contains the correct amount of pay. Where it
Does
-
- You do not need to take any further action
Does not
-
- Contact the employer again to remind them that the amended P14 has not yet been received
- BF the case for a further 6 weeks
- On BF, review the tax calculation again to ensure that it now contains the correct amount of pay
Under / overpayment reasons
At the point at which reconciliation is triggered and the customer is under / overpaid, the PAYE Service picks up and identifies reasons for the under/overpayments based on information held on the customers account. The reasons are populated on the customer’s record and in the vast majority of cases, the reasons identified are correct.
However, when reviewing a tax calculation to be issued or following a customer’s enquiry, you should update / amend the reasons and if necessary re-reconcile the case in accordance with instructions at PAYE93040 and PAYE93045.
Married Couple’s Allowance
Although Married Couple’s allowance (MCA) is taken into account in the tax calculation, you will not be able to view details of the allowance within the tax calculation screen. The amount of Married Couple’s allowance available can be viewed by drilling down into the Tax Chargeable field.
The amount of Married Couple’s Allowance will be deducted from the amount of tax chargeable for the year for example
| Tax Chargeable | 581.20 |
| Less MCA 4295 at 10 per cent | 429.50 |
| Less tax paid | 151.00 |
| Tax due | 00.70 |
No Allowances indicator: Effect on batch reconciliation
Where the No Allowance indicator is set, it is not year specific. Therefore, if the indicator has been set and batch reconciliation takes place, no personal allowances will be given within the reconciliation even if they are due for that year. Where a previous reconciliation result exists, the personal allowances will no longer be displayed in the calculation summary.
Missing Employments
End of year tax calculations use the employments recorded on a customer’s record to determine the pay and tax to be included within the calculation and in the majority of cases, the calculations concerned will include the correct figures. However, exceptionally, there may be limited circumstances under which a P14 is held on the customers’ record showing previous pay and tax figures on it for which an employment in respect of the figures is not held. You may become aware of this during the course of reviewing a tax calculation to be issued and where this is so do not approve (that is Submit) the calculation for issue and proceed as follows
- Make a note of the Total Pay and Tax details for the year from Pay And Tax Summary
- Use the P800 SEES calculator entering pay and tax with all relevant allowances and deductions for the year to establish the overall tax position for the year
- Where the result of the calculation is an underpayment or overpayment within tolerances set the year to ‘Reconciled - Balanced’
- Where the result is above tolerances
-
- Send a letter to the customer requesting full details of their employments / periods of JSA in the year concerned. The details requested should include
-
- The employers name / address
- The employers PAYE reference number
- The start / end dates of the ‘employments’
- Where the employer has gone into liquidation, any relevant documents relating to Pay received from the liquidator
-
- Update Contact History with details of the action taken
- BF the case for 4 weeks
- On BF, if a reply to the enquiry is
Received
-
- Review the customer employment record for the year and update it to include the employment the previously unlinked pay and tax figures refer to
- Manually capture the pay and tax figures against the employment as a P60
- Reconcile the year and review and approve it, or if necessary, further amend the calculation before approving it
Not received - reconcile the year based on the information held on the customers record and where the resulting calculation shows an
-
- Overpayment, do not approve the calculation for issue and manually clear the year as ‘Reconciled - Balanced’
- Underpayment, approve the calculation for issue
