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HMRC internal manual

Compliance Operational Guidance

HM Revenue & Customs
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Alternative rights of recovery (PAYE directions): further action when a direction seems appropriate: general overview relating to SA returns

SA return required

It is HMRC policy that each year a director of a corporate business is issued with a notice under Section 8 TMA requiring an SA return to be made. The SA return made by the director should include the supplementary ‘Employment’ pages (E1 and E2) for each separate employment. The director is required to enter on the ‘Employment’ page E1 the taxable pay (after superannuation) and the tax deducted. The entries should be scrutinised to see if there is anything amiss with them in relation to your PAYE calculations on form C500. If you do find something wrong with those entries (for example, the pay is understated and/or any PAYE tax claimed as a credit was not suffered or paid)

  • include the year in the letter (COG931920) to the taxpayer warning about a direction
  • ensure the no repayment signal has been set
  • liaise with the caseworker, if there is an open enquiry, regarding any anomalies with an SA Return, bearing in mind that enquiries are primarily directed to the PAYE failure of the employer (COG931710 refers).

Looking at SA returns

In the simplest of cases the tax being considered will be the PAYE tax (on form C500) which the employer has under-deducted and which remains unpaid. This is on the basis that

  • the SA return is accurate
  • the director has claimed credit for the tax which the employer ought to have deducted
  • any balancing underpayment has been paid or coded out
  • the direction you make simply removes the tax credit and causes the same amount to be put into charge.

More commonly you will find directors

  • get the level of remuneration wrong
  • claim an incorrect PAYE credit (or not at all – see COG931290)
  • have claimed and received a repayment which you need to recover in addition to the direction tax
  • have more than one employment which you are obliged to check for PAYE failure.

These matters should be considered by you. In particular, you should look for

  • inflated tax credits which are larger than the tax deductible by the employer. In these circumstances you will direct only in respect of the PAYE failure, but you will need to
    • remove the entire tax credit and recover consequential tax
    • consider penalties for an incorrect return
  • tax credits claimed under Regulation 185 but where the tax credit
    • was not suffered, and
    • resulted in the taxpayer receiving a repayment.

Under these circumstances, and provided you are not making a direction, details should be passed to RIS, see Risk & Intelligence Service Automated mailbox process so that

  • the Regulation 185 restrictions may be invoked, and
  • tax overpaid can be recovered under a Section 9A enquiry or Section 30 assessment.

If, for the purposes of recovering potential direction tax a notice under Section 8 TMA has not been issued, and the employee/director has not made an SA return

  • where a tax return has not been issued, arrange to issue it immediately
  • where a tax return has been issued, but not submitted, warn the taxpayer in writing that the return is outstanding and should be submitted. If the return is not submitted, arrange to issue a determination. Make a note on SA and periodically check for receipt of the return.

SA returns and recovery of direction tax

The following table gives an indication of the process for recovering an under-deduction once a direction has been made.

Circumstances Recovery Process
Taxpayer’s SA return is filed on time (S8(1A) TMA)  


Direction made and activated in the period up to 12 months from filing date for the relevant year’s SA return. The taxpayer may amend SA return to give effect to the direction up to 12 months from the Statutory filing date.

Failing this, the SA processing office should instigate a S9A TMA enquiry, and in due course

  • make the required amendment to the SA return (S28A(4) TMA).  
      Taxpayer’s SA return is filed late


Direction made and activated in the period ending with the quarter date next following the first anniversary of the date the SA return was logged as received by HMRC (See Section 9A(2)(b) TMA). As above  
  Direction made and/or activated later than in above periods. SA processing office raises Section 29 TMA discovery assessment to recover the tax emerging from the direction.