SAM121690 - Returns: individuals returns: the coding (integrity) check

The guidance in this subject applies to returns captured before 6 April 2010 for years 2008/09 and earlier. 

General
PSE signals
Keeping the code up to date

General

The Coding (Integrity) Check is carried out following capture of a taxpayer’s return which includes PAYE income.

The Local Data Capture (LDC) and main computer systems identify returns with PAYE sources on the Main Tax Return (SA100) as those that include

• Employment supplementary pages
• Minister of Religion supplementary pages
• Entries for ‘Other (non-State) pensions or ‘Taxable Incapacity Benefit’

The Local Data Capture (LDC), Automated Data Capture (ADC) and main computer systems identify returns with PAYE sources on the Short Tax Return (SA200) as those that include

• Entries in the Employment Income section
• Entries for ‘Other (non-State) pensions’ or ‘Other Taxable State Benefits’

The check must be done in the office with processing responsibility in all cases, even where the main source is a trading or other income source. 

• For cases where the taxpayer is in receipt of benefits the check is a comparison of information on the return with information already held on
• The PAYE Service, if available to you.

• The Employer Compliance System

In the absence of ECS details, the check is confined to a comparison of the return and coding record of the same year.

When undertaking the Coding (Integrity) Check you need to consider

• Whether there is a discrepancy between the return and the ECS details

• Whether there is a discrepancy between the return and the coding details of the same year

The Coding (Integrity) Check should be passed in all cases where the taxpayer is not in receipt of benefits(This text has been withheld because of exemptions in the Freedom of Information Act 2000) (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

(This text has been withheld because of exemptions in the Freedom of Information Act 2000) 

The ‘Pass’ or ‘Fail’ signal is set on the computer record and the taxpayer’s record is updated with the captured return information which was held in LDC awaiting the result of the check.

Note: In order to correctly carry out the Coding (Integrity) Check in cases where returns are filed by Internet or Automated Data Capture (ADC), and update the code using all relevant information supplied by the taxpayer on the return, you should view the Full return, not just those boxes captured in Local Data Capture. To view a full Internet return you should use function VIEW RETURN, select ‘Version 1’ and select ‘Full Internet Return’ from the file option on the menu bar. To view a full ADC return you should select the [View Image] button (camera lens) or use function MAINTAIN RETURN SUMMARY.

On receipt of the information from LDC the main computer will carry out the processing of the information (SAM121515). As part of that processing, work items are created for cases which fail the check.

For more information on the Employer Compliance Scheme Benefits summary printout see subject ‘Employer Compliance System Printouts’ (SAM101110) in section ‘Maintain Taxpayer Record’.

Top of page

PSE signals

There will be some areas of genuine risk which the RISK team or Personal Return Compliance team will not be able to identify from the ‘Daily Returns Review: Failed Coding Integrity’ Work List or through profiling within the SA Data Mart. You should set the relevant PSE signal with a brief explanation of the reason entered in the review notes if you identify matters

• Which are clearly wrong (see circumstances listed below), and
• Are other than an obvious error which can be repaired or items which can be dealt with under the Minor Queries procedure(This text has been withheld because of exemptions in the Freedom of Information Act 2000) 
• The discrepancy exceeds £500

PSE signal should only be set when

• Unemployment Benefit or Job Seekers Allowance details are missing, incomplete or do not agree with the information held on the taxpayer record
• Repayment has been made in-year but has not been entered on the return (box 1 of the Finishing your Tax Return section page TR 5 Main Tax Return (SA100); box 12.11 Short Tax Return (SA200)), and you are unable to deal with in accordance with guidance at subject ‘Returns Which Include A PAYE Source Of Income’ (SAM121210)
• DEI is in the code but there is no entry on the return (Box 15 of the Income section page TR 3 SA100; Question 7 SA200)
• Important information is provided in the white spaces, normally identified by your Compliance Manager (box 19 of the Finishing your Tax Return section page TR 6, box 23.9 for 2005/06 and 2006/07, box 23.7 for 2004/05, box 23.5 for earlier years)
• Entries in the PAYE Service Function CONTACT HISTORY are not reflected on the return
• The SA record suggests that a supplementary page has not been completed for a known source of income

You do not need to manually send these cases through to Compliance to review.

In other limited situations, agreed locally between Compliance and Processing managers, you may be asked to refer cases with specific risks to the Compliance team. These liaison arrangements must be kept to a small proportion of cases. An example would be

• Additional Information entries which are of particular interest to Compliance staff

PSE signal is not to be set when

• Reduction / increase in investment income
• OCCP has reduced
• Other income is shown in box 15 of the Income section page TR 3
• First claim RAR appears to have been made
• PPR / RAR carry back claim is made
• Loan Interest is claimed
• Large EIS / VCT investment is shown
• Charitable Deeds or Gift Aid is shown
• Maintenance Payments are claimed
• A large repayment arises
• Incorrect NIB is shown (deal with in accordance with ‘Special Treatment’ cases)
• Tips are declared
• High expenses / T&S / PSUB present
• UK Property ceased and there is no CG page
• Foreign earnings deduction present
• Losses arise
• No CIS vouchers have been sent with the return

Top of page

Keeping the code up to date

The code should be updated in all cases (except where the PAYE record shows that the taxpayer ceased PAYE in CY-1 or earlier) regardless of whether the case has passed or failed the check, immediately after the return is captured.

Notes:

Where ECS details are held on the PAYE Service Function IABD (Income, Allowances, Benefits and Deductions)

• Amend the code using these details. Note: When using the Coding Assistant, ECS details from SA Notes and all other items coded in CY will be automatically imported to Coding Assistant, and will be present when you enter the taxpayer reference

Where ECS details are not held, or not appropriate

• Amend the code using the details the taxpayer has supplied on their return for the same year, except in cases where the taxpayer has benefits coded and there are no entries on the return. In these cases, where the taxpayer is continuing in the same employment and you have not received notification that the benefits have ceased, the benefits in the code should be left undisturbed but other coding adjustments should still be made in accordance with the latest information held

Where, on reviewing a SA200 case, there is a claim for allowable expenses and you are unable to determine a breakdown of the figure in box 2.5 on the return, code as EXP (Expenses) and remove the other descriptors from the coding. Where, on the basis of previous years, it can be assumed that FRE (Flat Rate Expenses) is part of the expenses claimed, then the amount of FRE can usually be determined. This amount should then be coded as FRE with the balance only coded as EXP.

Higher Rate Adjustment and Non-PAYE Income

When updating the CY code and Higher Rate Adjustment (HRA) or non-PAYE income is already in the code, you must use the Coding Assistant to calculate the CY and CY+1 code based on the information in the return, including any new sources of income. The codes should be updated accordingly.

In all cases,you must first check box 3 of the Finishing your Tax Return section of the return page TR 5 (SA100) or box 12.13 (SA200) to see if the taxpayer has made an objection to the inclusion of non-PAYE income in their coding. For each return year, the TR 5 box 3 or box 12.13 position will override what has occurred in previous years as it is the taxpayer’s latest election. If there has been an objection, indicated by a tick in TR 5 box 3 or box 12.13, you should not include the non-PAYE income in the coding. Any additional tax will be collected through the SA return.

In cases where you consider HRA, or an amount of untaxed income which is not employment, pension or social security income, should be included in the code for the first time, regardless of whether this is from a new or an existing source, you should use the Coding Assistant to determine both the CY and CY+1 code.

You may also add a manual note on the Coding Assistant to indicate the reason why non-PAYE income has been coded (TR 5 box 3 or box 12.13 not ticked) or has not been coded (TR 5 box 3 or box 12.13 is ticked or following an objection).

You do not have to advise the taxpayer or their agent of your intention to code. If any query is received as to why we have not notified our intention to code, you should refer to the notes in the Tax Return Guide (returns for 2006/07 onwards) which clearly ask the taxpayer to tick TR 5 box 3 or box 12.13 if they do not want any tax due on CY non-PAYE income collected through their CY code.

Notes:

If the addition of the HRA or untaxed income results in a K code, you must remember that the primary purpose of a K code is to

• Collect tax on benefits in kind
• Collect tax on state benefits

Although the computer will allocate a K code in all cases where the deductions exceed allowances, the Coding Assistant will check that

• The intended K code will not trigger the 50 per cent overriding limit

You must ensure that

• All PAYE income has already been taken into consideration
• Any tax unpaid for previous years has already been taken into consideration

• • The taxpayer does not object to the coding of the HRA or untaxed income. Note: You should check TR 5 box 3 or box 12.13 (returns for 2006/07 onwards) plus both SA notes and the PAYE Service Function CONTACT HISTORY to check if there has been an objection. If the taxpayer objects you must remove these items from the code

Note: See section ‘Coding Deductions and Expenses’, subject ‘Non-PAYE Income’ (PAYE12045) in the PAYE Manual to determine what deductions can be included in the code.

If at any time a taxpayer requests that they want to pay the tax due on taxed or untaxed income which is not employment, pension or social security income direct to us rather than through their code, you should

• Remove the amount of adjustment or deduction from the coding
• Using the SEES notes paster, enter the message ‘Customer objects to coding Non-PAYE Income. Additional tax payable via SA’ on both the PAYE Service Function CONTACT HISTORY and SA notes
• Set the Automatic Closure Inhibit signal on the SA record

You should also check that function MAINTAIN RETURN PROFILE is updated.

Note: Where the Non-PAYE income is removed from the coding after the return selection process for the following year has taken place, you must ensure that a return is issued and the date of issue is recorded on the SA record.

The signals on the PAYE record should also be reviewed and updated as appropriate. See subject 'Reviewing signals on the PAYE record' (SAM121670) for more information.

ESTPAY

In all cases where the Coding (Integrity) Check is being carried out, including when updating the CY code, remember to review the figure used for ESTPAY or ESTINC which are used in the calculation of some coding allowances and adjustments.

Details of all coding allowances and adjustments, together with details of where information is given in the appropriate manual, can be found on form P202.