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HMRC internal manual

Compliance Operational Guidance

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HM Revenue & Customs
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Supporting Guidance: employer compliance: guidance by subject: open year inaccuracies: when to include the open year/open tax periods in a class 6 settlement

Pre-RTI open years

Open year underpayments for non-RTI years should not normally be included in a Class 6 settlement.

Employers should amend open year records to enable the submission of correct end of year returns. But see COG906610 if the scheme has only recently been set up.

RTI open year and open tax periods

Where your compliance check identifies payroll inaccuracies for RTI open years and current year open tax periods you should instruct the employer to correct the inaccuracies by submitting

  • an Earlier Year Update (EYU) for open year underpayments
  • a Full Payment Submission (FPS) reporting the year to date figures for pay, tax and NIC (see COG904250)
  • an Employer Payment Summary (EPS) reporting the year to date deductions for statutory payments, CIS deductions (see COG904220).

You should ordinarily encourage the employer to report the correct position by using one of the methods described above. This will ensure that the correct pay and tax information is reported on later returns.

However,

  • if the employer requests that the open year and open tax period additional duties should be included in a contract settlement or
  • you are recovering additional duties for

    • closed year inaccuracies
    • employee benefits or
    • other liabilities

and it is more cost-effective or administratively convenient, see CH411100, then you can include the additional duties in a Class 6 contract settlement (see COG904260).

See also COG910130 and COG910150 in relation to contractors’ monthly returns.

Exceptionally where an employer’s records are inadequate and he genuinely does not know the names of employees who received payment without deduction you should

  • calculate the tax due using Basic Rate
  • work out any NICs
  • if appropriate, calculate any interest, and
  • consider whether a penalty is appropriate in accordance with COG914050 (for post April 2009 see CH80000)
  • seek to recover the above amounts by Class 6 settlement.

There may be other circumstances where it is impractical for the employer to make the necessary amendments before submitting a return for an open year. Before agreeing to recover the amounts in a Class 6 settlement you must

  • seek approval from your manager.

If the employer claims that the amount due to be paid exceed the employees’ tax liability see COG906560 and COG908130.

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

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

  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000) COG915065(This content has been withheld because of exemptions in the Freedom of Information Act 2000)