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HMRC internal manual

PAYE Manual

From
HM Revenue & Customs
Updated
, see all updates

Employer returns: employer return post capture: tax credits

This subject consists of the following

Background

In October 1999 the Government introduced the following tax credits which replaced the social security benefits Family Credit and Disability Working Allowance

  • Working Families Tax Credit (WFTC)

And

  • Disabled Person’s Tax Credit (DPTC)

At the same time, it was also decided that the Family Credit Unit would become an HMRC Executive Office known as the Tax Credit Office (TCO). They would be responsible for the administration of the Tax Credit Service (TCS).

From April 2000 a change was made to legislation so that the normal method of payment of tax credits for employees would be through the employer as part of the PAYE process.

In April 2003 WFTC and DPTC were replaced by Working Tax Credit.

From April 2006 a change was made to legislation so that the method of payment of all tax credits would be direct to the taxpayer.

Note: If an employer tells you that they have paid Working Tax Credit after 31 March 2006 and / or has carried forward Tax Credit Funding into 2006-07, you should advise the employer to contact the Employer Helpline on 0300 200 3200 (text phone 0300 200 3212).

The following provides information about the operation of the Tax Credit System prior to 31 March 2006.

Computer Systems

The Tax Credit System (TCS) (via user role ‘TCS View ECU’) and the New Tax Credit (NTC) (via user role ‘EFBS Maintainer’) are available to staff on Employer units to view

  • Tax credits authorised for an employer

And

  • Tax credit funding details

Notes:

  1. The self-employed continued to get their payments direct, contractors were not required to pay out tax credits.

  2. Employer who operate certain scheme types were not required to deal with the payment of tax credits

DCNI

DOME

DPGEN

DPNI

ELECT

EPA

EXAM

NORPRO

PSS

TAS

TRONC

XP

And from April 2003

OCPN

Tax Credit Office advised the employer of the amount of tax credits to be paid for the period of a claim and when payment was to commence and cease to be paid via the employer.

Payment of Tax Credits via the employer was phased out during the period November 2006 to 31 March 2006.

Tax credit funding

The employer was able to set-off tax credits paid out against the tax, NIC and Student Loan deductions due to HMRC each month or quarter.

The tax credits an employer was due to pay may exceed the tax, NIC and Student Loan Deductions due to HMRC. Where this arose the employer could apply for funding either in writing or by telephone to Banking Operations.

If you receive any questions from an employer about Tax Credit Funding you should advise the employer to contact the Employer Helpline on 0300 200 3200 (text phone 0300 200 3212).

Employer responsibilities

The employer

  • Used a daily rate table to calculate the amount of tax credit to be paid each pay period
  • Added that amount to the employees net pay (tax credit is not subject to tax or NIC)
  • Recorded the amount of tax credit paid on the form P11 or equivalent (column 9)
  • Showed the amount separately on the employee’s payslip

End of year employer action

At the end of the tax year the employer

  • Adds up the amount of tax credits paid to arrive at the total ‘Tax Credits Paid’ and enters this amount on the employer’s annual return
  • Adds up the amount of tax credit funding shown on the payment advice notices to arrive at the total ‘Tax Credit Funding from Inland Revenue’ and enters this amount on the employer’s annual return
  • Takes account of any TC80s received (these confirm the amounts of funding which have been reallocated or reversed)
  • Consider whether all funding payments received in the year have been paid out to all employees

If you receive any questions from an employer about Tax Credit Funding you should advise the employer to contact the Employer Helpline on 0300 200 3200 (text phone 0300 200 3212).

Processing returns and tax credits

The amounts entered for tax credits (funding received and tax credits paid) on the employer’s annual return as with all other monetary entries on a return will be entered onto Employer Business Service (EBS) by using Function CAPTURE EOY RETURN DETAILS.

All monetary fields using this function require entries to be input twice. After entries have been made for the second time prior to committing the information onto EBS an automatic check will be made. This check will involve the figure entered in the Tax Credits Funding field being compared with the funding figure held on the Tax Credit System. If there is a discrepancy

  • A message will be presented giving you details of the discrepancy

And

  • The Tax Funding Discrepancy indicator will be automatically set on the employer record

There is a TCS system-held tolerance (This content has been withheld because of exemptions in the Freedom of Information Act 2000) , which will be used when a tax credit funding discrepancy occurs. If the discrepancy is within the tolerance then you will not be advised of the discrepancy.

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

COYO and tax credits

When considering whether tax year 2000-01 to 2002-03 on an employer record can be cleared cancelled one year only you must make an additional check to review TCS by using TCS Function MAINTAIN PAYMENTS to ensure the employer has not paid tax credits or received funding.

For tax years 2003-04 to 2005-06 you will be prevented from using Functions AMEND EMPLOYER INDICATORS or CANCEL SCHEMES ONE YEAR ONLY to COYO the employer record if tax credits had been authorised to be made by the employer during the respective tax year. Guidance on the action to take in these circumstances is in ‘Cancelled one year only (COYO) up to 2007 (Action Guide)’ at PAYE21021.