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HMRC internal manual

PAYE Manual

PAYE operation: double taxation claims submitted by non resident individuals: cancellation of double taxation relief: reconciling year of cancellation (Action Guide)

To reconcile the year double taxation relief is cancelled, follow steps 1 - 6 below.

The guide is presented as follows

  Step 1
   
  Steps 2 - 3
  Steps 4 - 5
  Step 6

Initial action

1. Ensure employment records are set up for all pension sources
   
  * Review the P14 SUMMARY / END OF YEAR SUMMARY screen and note full details of the income where exemption had previously been given
  * Check IABD summary for other income

Calculate amount of non-liable income

  Before reconciling the year, you will need to calculate the amount of income not liable to UK tax. This is the amount of income earned up to the date double taxation relief ceases to be available
   
  Any income for which exemption had not been granted remains fully liable to UK tax for the whole of the year
2. In Excel, select SEES then Other Calculators + Forms + NPPS then Dates Calculator
  * Select time apportionment tab
  ‘Base period’
  * ‘From’ date is the start of the tax year in which exemption was cancelled
  * ‘To’ date is the following 5 April
  * ‘Amount’ is the total amount of income received, as taken from the P14 or P60
  ‘Apportionment period’
  * ‘From’ date is the start of the tax year in which exemption was cancelled
  * ‘To’ date is the day before the date of cancellation of the exemption
  This calculates the amount that is not liable to UK tax
  * Print a copy of the calculation
  * Repeat for all income sources that were previously exempt
  * Add apportioned amounts together to determine the total amount of non-liable income. Make a note of this amount
  For occupational pensions, the total non-liable amount will be entered as Foreign Pension Allowance in IABD
  Where no state pension is received or where state pension was not exempt, go to step 4
3. For state pension, only the liable amount is entered in the state pension box
  * Calculate the amount not liable to tax in accordance with step 2
  * Deduct this amount from the total amount of state pension received. This is the amount that will be entered in the state pension box. Make a note of this amount

Update IABD

4. In IABD Landing, select other form and relevant tax year. Enter date of receipt
   
  * Drill down into allowances
  * Enter the amount of Foreign Pension Allowance due, as calculated in step 2
  * Save
  Where no state pension is received or where state pension was not exempt, go to step 6, otherwise
5. Drill down into pensions and then state pension
  * Record the liable amount, as calculated in step 3
  * Set the Estimated National Insurance Benefit indicator
  * Select the frequency of payment as Annual
  * Save, and Save again

Reconcile year of cancellation

6. Where the tax year has already been reconciled, re-reconcile the case by selecting the tax year and then Reconcile. This will take you to the tax calculation screen
   
  Where an underpayment of tax has arisen, issue the calculation. You should then
  * Select submit again to take you to the second ‘reason for underpayment’ screen
  * Select the reason as ‘other’ and enter the reason ‘Double taxation exemption cancelled’
  * Select Submit
  * Contact History Note: In Actions box enter ‘[year] reconciled, underpaid as DT exemption cancelled with effect from [enter date of cancellation]’
  * Delete freehand note in Additional Notes box in Indicators screen and update Contact History
  Where an overpayment of tax has arisen, you will need to determine the reason for the overpayment as this will not be a result of cancellation of double taxation relief. Once you have determined the reason, issue the calculation. You should then
  * Select the reason for the overpayment
  * Select where the repayment will be made (Agent / Individual / Capacitor / Nominee) and submit
  * Contact History Note: In Actions box enter ‘[year] reconciled, overpaid as [enter reason for overpayment]’
  * Delete freehand note in Additional Notes box in Indicators screen and update Contact History
  Where the year is balanced, or an underpayment or overpayment has arisen that is within the tolerances, you should
  * Select cancel to navigate out of the tax calculation screen
  * Ensure the tax year is now showing ‘Reconciled - balanced’
  * Select Indicators and Save to make a Contact History note
  * Contact History Note: In Actions box enter ‘[year] reconciled following cancellation of DT exemption, year balanced’
  * Delete freehand note in Additional Notes box in Indicators screen and update Contact History