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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: compliance revenue recording: P35 omissions and PAYE reconciliations (up to and including 2012-13)

It is an important part of any compliance check to look at the accuracy of employer returns submitted by a business. Whilst doing this you may identify instances where an employer has operated PAYE but left some of the tax and NIC they have deducted off their P35 return.

In doing so the employer’s P35 return is incorrect and as part of your compliance check you will have to reconcile the tax and NIC the employer has deducted and paid to HMRC and recover any amount that remains unpaid.

Regardless of whether the employer made the necessary deductions and/or has paid them, their P35 return is incorrect/inaccurate and penalties under Section 98A(4) TMA 1970 and Schedule 24 FA07 should be considered and charged where appropriate. The penalty is based on the total tax and NIC the employer left off the P35. The amount actually paid is not relevant when calculating the difference/potential lost revenue.

Where during the course of your enquiries you find that a supplementary return has already been submitted and accepted you should still consider penalties for the submission of an incorrect/inaccurate original return.

Although a supplementary return has no basis in statute, they are often submitted by employers to rectify errors/omissions on the original return.

COG915602, COG915603 and COG915604 explain the circumstances when you can accept a supplementary return to reconcile tax and NIC the employer has deducted but left off their original return.

The appropriate settlement process will depend on whether or not the omitted tax and NIC has been paid.

  • Correct amount of tax and NIC deducted and paid in full - COG915602 
  • Correct amount of tax and NIC deducted but not paid in full - COG915603 
  • Tax and NIC deducted left off the P35 and other liabilities identified - COG915604 

Note: the guidance for dealing with cases where an employer has claimed a credit in box CIS deductions suffered on their P35 for CIS deductions they did not suffer is at COG915605.

Recording the Settlement and Compliance Revenue

From 2012-13, compliance revenue can only be scored on P35 overpayments if we can establish a clear risk that

  • a repayment was likely to have been made now or in the future
  • the amount of the ‘overpayment’ has or would have been at risk of being attributed against another amount of tax outstanding.

If this criteria is met you should wait for the supplementary/pro forma return to be processed and dependent upon the recovery method, record on ECS/Caseflow as

  • Class 6 charge, or
  • P35 obtained, or
  • Regulation 80 Determination and/or Decision for Class 1/1A NIC, or a
  • combination of the above.


  • the amount of PAYE and NIC omitted from the original return
  • any other liabilities identified as part of your check
  • interest
  • any penalty.