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HMRC internal manual

PAYE Manual

Reconcile individual: posting EOY information to individual records: under-deductions

Where you have reason to review a customer record you may identify that their employer or pension payer has under-deducted tax. Alternatively the employer themselves may let you know prior to any reconciliation of the customer record.

Scottish tax only applies from 2016-17 onwards. See PAYE100035 for further information on Scottish income tax.

Under-deductions of PAYE tax should always be requested from the employer in the first instance. In all cases you should follow Action guide tax40107.

PAYE Credit

The PAYE Regulations at Regulation 185(5) confirm that an employee is due a PAYE credit for tax deducted or tax treated as deducted (where an error occurred) that should be restricted as necessary to prevent any repayment to the employee for that employment. This is because the employee has not paid the tax deduction.

You should create a Notional credit on the employee’s record when the following scenarios occur

  • HMRC receives payment from the employer but no amended return is received
  • A Refusal Notice is issued to the employer and there has been no appeal received within 30 days and no payment has been made by the employer
  • A Contract Settlement or Regulation 80 determination is issued to the employer for the tax (PAYE54000 onwards)

Guidance on creating a notional credit on the PAYE Service can be found at PAYE93036.

Direction issued

Where you receive a case back from DMB PEU and a Direction has been issued to the employee, this means that the tax is payable by the employee and no credit should be given or it should be removed if already given.


1. PAYE Directions carry a right of appeal which may be overturned at Tribunal Review.
2. Employers also have the right of appeal against a Refusal to Direct which, if successful will mean that any credit should be removed.