PAYE92025 - Reconcile individual: posting EOY information to individual records: interaction of self assessment and PAYE

In Self Assessment a calculation is made of the tax due for a year in accordance with S59B Taxes Management Act. Payments on account for the following year are also calculated in accordance with S59A Taxes Management Act by reference to the self assessment. Self assessments incorporate PAYE income and tax deducted. The PAYE tax figure used in the calculation can be adjusted to take account of matters such as PAYE directions, where appropriate.

The figure of PAYE tax taken into account in both the self assessment and the payments on account will always be the same.

In any year, tax can be deducted under PAYE for both that year and an earlier year, and tax due for a year may be collected through PAYE in a later year where an underpayment for one year is included in the coding for the following year.

The PAYE tax taken into account in the calculation of a self assessment and payments on account based on that calculation should

• Exclude the tax deducted in the year that relates to an earlier year, but
• Include the tax due for the year which will be collected through PAYE for a later year

These adjustments are made automatically in self assessment Revenue calculation cases and are provided for in the tax calculation working sheet for customers who self calculate.

In self assessment the customer must enter pay and tax details on the employment page of the SA return, so that the self assessment can be made. For most customers, the figure of tax deducted on the form P60 is correct and they will enter that into the ‘tax deducted’ box on the employment pages. Some customers may enter a different figure into the ‘tax deducted’ box, where, for example, they consider (or have been advised) that there has been a PAYE failure and that they are entitled to be credited with the full tax credit under Regulation 185(5) IT (PAYE) Regulations 2003.

If a customer approaches you about a PAYE problem before filing a self assessment return, for example, because they have not got a P60 or do not agree with it, you should always advise them that a return should be filed on time, using a best estimate if necessary. You can assist the customer in arriving at a best estimate if they provide details of income and allowances, but you should always say that the estimated figure may be looked into by HMRC at a later date.

Once you have assisted a customer in this way you should always advise the Employer Compliance section, as a problem on one case may suggest a wider PAYE problem.

Once returns are filed, the customer can amend all aspects, including the PAYE details, up to 22 months after the end of a tax year. HMRC can also adjust the PAYE details, for example, to take account of PAYE directions under Regulations 72(5) condition A, 72(5) condition B or 81(4) condition A or B. Information about adjustments that are needed will normally arise out of employer compliance reviews or be notified by PAYE Direction Units or more usually the PAYE Errors Unit.

Any HMRC adjustments will normally be made by way of an enquiry into a self assessment, or, where there has been an enquiry or the enquiry window has closed, by way of a discovery assessment under S29 TMA 1970.

The precise action needed to adjust a case for matters such as a PAYE direction where there has been a PAYE failure will vary, depending on how the employee completed the SA return. For example, both income and associated PAYE tax may have been omitted, or income may have been declared but a PAYE credit may have been claimed.

Note: It is essential that the basis on which the employment pages have been completed is fully understood before any action is taken to correct the position.