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HMRC internal manual

Debt Management and Banking Manual

Debt and return pursuit: PAYE RTI: interest: interest objections

Interest is charged under Section 101 of the Finance Act 2009. Employers are liable to interest if they have not paid over the full amount due for a tax period by the 19th of the month (or 22nd if they pay electronically); for example, period 6/7 – 5/8 must be paid 19/8 by cheque or 22/8 electronically. This is to compensate the Exchequer for late payment and to provide a measure of fairness to those taxpayers who pay what is due on time.

Employers may disagree with being charged late-payment interest (LPI) and although there is no right of appeal against interest, they can object. If they wish to object, they do not need to do so in writing, you can deal with the objection on the phone.

Objections are generally made on the grounds they disagree with the dates payments were received or how these were allocated and you should try to resolve these with employers making where necessary adjustments to ETMP. Where an employer claims the PAYE charge on which interest was charged was incorrect, you will need to determine the reason which may mean the matter being referred to the RTI Interest Unit (RTI IU) for further review. The customer will not need to write in, you should refer the objection internally using the guidance below on referring the case to the RTI Interest Unit.

Why an employer may object to interest

An employer may have received an RTI514 letter (ETMP interest charge notification) or have reviewed their online account, notice the interest figure and may contact HMRC to object to the interest we have charged.

Consideration should be given to common scenarios below; others are shown at DMBM404020. Each case should be handled on its own merit. Cases where the interest was correctly charged should be rejected, cases where the interest needs to be amended or cancelled should be referred to the RTI IU.

Payments - misallocation and EDPs (effective dates of payment)

Some payments may have:

  • been misallocated through employer error in not providing the correct or complete payment reference or ETMP or HMRC staff allocating payments that the  employer did not expect
  • an incorrect EDP as a result of an incorrect clerical reallocation.

Where a misallocated payment has been identified it will need to be reallocated to the intended charge as directed by the employer. However, when reallocating payments, consider the effect of interest and late-payment penalties as such a reallocation may put the employer in a worse position and it may be more beneficial to leave payments as they are. Reallocation guidance can be found in DMBM519325 and DMBM210100.

Once a payment has been reallocated or the correct EDP applied, ETMP will recalculate interest charges which were originally automatically created by ETMP.

You should always resolve interest objections where the interest was generated by misallocation.

If you have completed the reallocation which satisfies the employer’s objection and you are speaking with the employer, check that verbal confirmation is sufficient to close the objection. If it is not, then issue a letter confirming the position.

Where the objection was made by post and you have successfully amended or cancelled the interest but you are unable to speak with the employer, issue a letter advising of the current position.

Where possible try to resolve the objection by phone.

FPS amendments

Where an employer makes a mistake with an FPS and overstates the amounts deducted, they have until 19th of the same tax period to adjust their monthly charge to the correct value. If they submit the correction later, the adjustment is included in the charge for a later month. If they pay each month according to their payroll records rather than what they’ve submitted, interest may be charged on the overstated amount until such time as it’s corrected. The table below provides an example of this scenario.

Month YTD figures supplied by customer FPS on ETMP (VCA) Payments made by customer Date Payments received Overstated Amount Interest
Month 2 £16,000 £6,000 £8,000 22/06/2014    
Month 1 £10,000 £10,000 £8,000 22/05/2014 £2,000 £4.93*
  • Interest would be calculated to 22/06/14 when £2,000 from £8,000 payment moved from month 2 to clear the overstated amount on month 1.

Where it is evident that the FPS credit has generated interest, refer these cases to the RTI Interest Unit.

EYU (Earlier Year Update) amendments

When an EYU is submitted reducing the charge of the last active month of the tax year to which the EYU relates, this reduction causes the last active month to become a credit charge; the credit from the charge will follow payment allocation rules and clear any open charges. If the open charges are older than the last active month that has been reduced then interest will be raised. The reckonable date used to calculate the interest the credit has is the 19th of the last active month.

In these situations, an employer may object to such interest charges because they believe they have corrected the RTI charge and in such circumstances you should:

  • determine the amount they believe their PAYE charge should have been
  • confirm the RTI submissions they have made contain the correct year-to-date (YTD) figures as these are needed to substantiate their claim and prove they have made the necessary adjustments
  • complete the referral stencil and refer the matter to RTI Interest Unit (see ‘Referring case to the RTI Interest Unit’ below).

From April 2015, whenever an employer submits an EYU which increases the charge of the last active month in the previous year, ETMP will raise a separate charge for the increased amount. This charge will have the interest reckonable date of 19 or 22 April of the previous year. Late payment of this EYU amendment will cause an interest charge to be raised.

EPS submitted late

An EPS is treated the same way as a payment therefore the late submission of an EPS will generate interest. The interest reckonable date for the late submission of an EPS is the 19th of the month following the period to which they are applied.

CIS deductions and statutory payments reported on an EPS are treated as payments on account which discharge the employer’s liability to pay PAYE, NICs and CIS - they do not reduce the amount the employer was legally required to deduct and account for; in other words, the legal charge for the purpose of ETMP and interest.

Disputed charges

Once a charge that has been under dispute is resolved it is possible that interest will be raised on the original, disputed amount. If the disputed amount was greater than £9,000, a clerical interest lock would have been applied as part of the disputed charge triage process. No automatic interest will be raised on these amounts.

Interest objections on disputed charge cases should be transferred to RTI Interest Unit once it has been determined from the employer what they considered the correct charge for the months in question should have been (see ‘Referring case to the RTI Interest Unit’ below). Payment of the non-disputed amounts should have been paid on time.

Considerations

If evidence shows the employer did not pay late for a particular month and they have been charged a late-payment penalty, seek advice from the DM Late Payment Penalties team by sending an email DM, Late Payment penalties (DM).

In other cases where the employer claims to have paid on time but evidence suggests otherwise you should reject the objection and maintain collection of the interest charge.

Weighing up the evidence

You should make your decision based on the information available. If interest has been correctly charged, reject the objection and request payment of the interest. If the employer has provided satisfactory evidence that corroborates their objection, refer the case to the RTI Interest Unit.

Postal (DMS) objections

If you receive a letter from an employer which is solely regarding or includes an objection to interest, you should make phone contact and deal with the objection following the guidance above.

If you are unable to contact the employer and the letter contains sufficient detail to resolve the objection, proceed with necessary actions required. Write to the employer explaining the actions you have taken. If the letter does not contain sufficient detail, write to the employer and request additional information.

Referring the case to the RTI Interest Unit

Once you have decided the interest needs to be cancelled or amended, complete the ‘RTI interest objection’ stencil on SEES Forms and Letters. If the objection is by post, close the item on DMS and add the ENVA number to the form. Send the form to the DMB RTI Interest Unit, Mailbox (DMB Debt Mgmt).

Do not ask the customer to contact the RTI IU and do not supply the RTI IU’s contact details.

Apply a clearing lock to the interest charge on ETMP (see helpcard on setting locks in ETMP).

Where the interest charge is on IDMS:

  • leave a suitable note on the interest work item
  • move the work item to C/W Distraint
  • transfer the work item to MU308314
  • set a next action of ‘employed review’ and BF for two months from today.

LBU staff should:

  • retain the work item in C/W PAYE
  • transfer the work item to MU397118
  • set a next action of ‘employed review’ and BF for one month.

In addition to noting details of the interest objection on IDMS, a note should be made on ETMP; the note should include if has been rejected or referred to the RTI IU.