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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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specific deductions: staffing costs: employer compliance settlements

This section deals with the situation where a settlement is made with an employer or contractor for tax due under PAYE or CIS tax (tax on payments to subcontractors in the building industry).

Tax referable to open periods

Liability for additional tax due under PAYE or CIS is properly attributable to the period in which the failure to account for the tax took place. Where the window for amending the SA has not closed, the employer or contractor should submit an amended SA. A deduction may be claimed in the amended SA for the PAYE and CIS tax (but not any interest or penalty) which relates to that period and has not otherwise been allowed.

Tax referable to settled periods

Relief for the PAYE and CIS tax relating to periods where the window for amending the SA has closed, can be claimed in an amended SA for the earliest subsequent period where the window remains open.

Alternative treatment

Alternatively, a deduction may be claimed for the whole of the further PAYE or CIS tax in the SA for the period of account in which the tax is paid.

Error or mistake claims

Claims to reopen settled periods under the ‘error or mistake’ provisions should be submitted to Central Policy (Tax Administration Advice) for advice.


A PAYE Employer Compliance settlement was made with A Ltd for 2005-06 to 2008-09 inclusive. It included additional PAYE tax of £5,300 which, if it had been paid at the correct time, would have been paid in the following years:

Year to 31/3/2006 Window closed £1,000  
Year to 31/3/2007 Window closed £1,200  
Year to 31/3/2008 Window open £1,500 £3,700
Year to 31/3/2009 Window open   £1,600

The tax due under the settlement was paid on 31 December 2009.

Deductions may be given as follows:

  • no relief can be given in the years ended 31/3/2006 and 31/3/2007 as the windows governing when the self-assessments can be amended have closed,
  • the tax of £3,700 for years to 31/3/2008 may be allowed in the year to 31/3/2008 where the window in which the self-assessment can be amended remains open, and
  • the tax of £1,600 for the year to 31/3/2009 may be allowed in the year to 31/3/2009 where the window remains open.

Alternatively, the whole of the £5,300 tax may be allowed in the year to 31/3/2010 during which it was paid.

VAT settlements

For guidance on deductions for VAT settlements made, see BIM31615 onwards.