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HMRC internal manual

PAYE Manual

HM Revenue & Customs
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PAYE operation: review of claims and deductions: review of claims and deductions - general

Claims not included in a return

If a claim is legitimately made outside a return it is a claim that is ‘not included in a return’ and falls within Section 42 TMA 1970. Any enquiries into these claims must be made formally under paragraph 5 of Schedule 1A TMA 1970 and completed by a closure notice issued under paragraph 7.

Claims that can be made outside a return

Claims can be made outside a return where any of the following apply

  • The customer does not receive a return form or a notice to file from HMRC, in other words they are not within ITSA
  • The return amendment window is closed but the claim is made within the claim time limit
  • The entitlement to make the claim arises before the return form or notice to file is issued, in other words before the end of the tax year
  • The claim is to carry back losses or retirement annuity relief or personal pension plan payments

Non return individual customers

Where the claim is made by an individual who does not receive an SA return the normal period in which you can open an enquiry is by the first anniversary of the quarter day following when the claim was made. For example, if a claim is made on 6 November 2006 you normally have until 31 January 2008 to open an enquiry - paragraph 5(2)(a) Schedule 1A TMA 1970.

The quarter days are 31 January, 30 April, 31 July and 31 October.

Examination of adjustments

You cannot open a formal enquiry into something that is not a claim under S42 TMA 1970 and is not in a tax return, or in an amendment to a tax return. Deductions on form P87 or entries on form P810 are not claims under S42 TMA1970.

You can ask questions about the exemption, deduction or adjustment and ask to see supporting documents. Although the rules of ITSA enquiries do not apply you should treat all customers in the same way and behave in the manner described in Code of Practice 11, ‘Self Assessment: Local Office enquiries’.

When challenging an exemption, deduction or other adjustment you should follow the relevant, specific guidance. The relevant guidance can be found in the Schedule E Manual for years up to and including 2002-03, and the Employment Income Manual for years 2003-04 onwards.

Re-opening earlier years

A key element in the review forms approach is to help customers pay the right amount of tax through their code and encourage voluntary compliance. Accordingly, we are less concerned than in the past with confronting customers with small underpayments that may have arisen in those years where we have chosen not to make any checks.

In general, you should not seek to re-open years before CY-1 unless information comes to hand which suggests there has been incomplete disclosure or fraudulent or negligent conduct coupled with a tax loss making reopening obviously justifiable. (This content has been withheld because of exemptions in the Freedom of Information Act 2000) Instead cases should be judged on their merits, with managers devising local guidelines to fit this approach. Any underpayment for earlier years should be coded out in accordance with PAYE12070.

Note: There is no intention here of relieving customers in any way of their obligation to notify us of changes in their circumstances just because we do not issue annual returns or review forms. Of course, there will be cases where you need to modify what you do to fit the circumstances, for example, where a customer voluntarily discloses liability for back years.

If you do decide to question earlier years, bear in mind that these should

  • Focus on the specific point(s) at issue
  • Be carried out by correspondence, not through the issue of returns

Where the examination of a review form discloses an overpayment in excess of the tolerance, and this is likely to extend into earlier years, you should always advise the customer in a letter and give them the opportunity to claim repayment.