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HMRC internal manual

PAYE Manual

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HM Revenue & Customs
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Reconcile individual: overpayments: repayment supplement

This subject is presented as follows

 

Conditions for payment of repayment supplement

Income Tax (Earnings and Pensions) Act 2003 provides for a payment in compensation to be made where there is a delay in making a repayment. The Act calls this payment a repayment supplement. It is referred to in this subject as supplement.

Supplement is payable on all overpayments, not just those where a payable order is actually issued, and is calculated on a daily basis. Supplement is given when

  • A repayment is made for a tax year. This includes a repayment made by formal set-off (R90 procedure) against arrears

And

  • The repayment is made after 31 January following the end of the year of assessment

Supplement is payable to all non-residents and United Kingdom residents.

Where the above conditions are met, supplement applies to any repayment made to

  • An individual
  • A trustee
  • The personal representative of a deceased person

Repayment supplement is due whether or not a repayment is issued. This means that although it is still possible to carry forward overpayments, each individual year must be looked at in isolation.

How repayment supplement is calculated

Supplement is the interest arising on a repayment for the period between

  • The relevant date (31 January following the year of claim)

And

  • The date on which the overpayment is issued, carried forward or set-off

Entitlement to supplement is not affected by late submission of returns, claims or relevant information.

Repayment already made

Sometimes a repayment has already been made for the same informal tax calculation. When the new repayment is made (normally following an amendment of the informal tax calculation), the old repayment must be taken into account before calculating the new net overpayment and supplement.

Return of the payable order

If the payable order is returned for whatever reason you should use Function ISSUE REPLACEMENT REPAYMENT within Debits and Credits to issue a replacement payable order. This will recalculate repayment supplement (if any) up to the date that the replacement payable order is issued.

Underpayment included in code

When reviewing a year that had an underpayment included in the coding, the underpayment must be taken into account when calculating the supplement. Particular care must be taken where there are subsequent years where underpayments have been coded. You must

  • Deduct the amount of the underpayment that should have been correctly coded in from the amount of PAYE tax paid during the year
  • Calculate the repayment for the year by deducting the tax due for the year from the amount above

Calculate the amount of supplement due on the net repayment as above.

This calculation is performed automatically by NPS.

Ex gratia payments

Ex gratia payments do not attract repayment supplement.

Multi years reconciliations

Where multiple year reconciliation is undertaken on the PAYE Service and the customer is overpaid for the year in isolation and the end result is that they are

  • Overpaid, any Repayment Supplement due for the year will be included in the Reconciliation Summary screen Cumulative Amount field and will also be visible in Accounting
  • Underpaid, any Repayment Supplement arising for the year in isolation will be included in the Cumulative Amount field but will not be visible in the Accounting screen. The Repayment Supplement will however be taken into account in the Tax calculation