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HMRC internal manual

PAYE Manual

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HM Revenue & Customs
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Reconcile individual: end of year reconciliation: introduction

Note: The Reconciliation screens within the PAYE Service show the result of the reconciliation for the year concerned only, that is, whether the customer has overpaid, underpaid and / or whether or not they have paid (within tolerances, see PAYE93075) the correct of amount of tax for the year. Details of the

  • Income, Allowances, Benefits and Deductions (IABD) (PAYE130000) and Employments (PAYE20000) included in the reconciliation are taken from other areas within the PAYE Service. For more details of them and for details of how to record them on the customer’s record you will need to refer to the appropriate instructions
  • From 2016-17 NPS will look at the status of the customer and use the correct rates of tax, rest of UK (rUK) or Scottish (PAYE100035)
  • Results of the Reconciliation are passed to the customer’s Accounting (PAYE98000) and if appropriate, their Coding (PAYE10000) records within the PAYE Service. Where you need more details as to how a particular underpayment / overpayment has been dealt with, you will need to refer to the appropriate instructions

The time limit for issuing underpayment calculations reduced from 6 years to 4 years on 1 April 2010. As form P800 is an informal calculation and has no statutory force, HMRC need to safeguard any tax that we are in danger of not collecting. This will be

  • Where we have notified the customer and they challenge the calculation
  • If the tax year is CY-4 and we have not yet notified the customer or proceeded to collect the underpayment

From April 2012 the time limit for claims is reduced to 4 years. The table below details the deadlines for submitting claims

Tax year Claim deadline
   
2009-10 5 April 2014
2010-11 5 April 2015
2011-12 5 April 2016
2012-13 5 April 2017
2013-14 5 April 2018
2014-15 5 April 2019
2015-16 5 April 2020
2016-17 5 April 2021

A valid claim is determined by the date the claim is received not when it is processed. For example, a claim received on 31 March 2017 for 2012-13 is still valid even if it wasn’t processed until 2017-18.

The remainder of this subject is presented as followed

General information

The End of Year (EOY) Reconciliation process is triggered either

  • Automatically when all expected EOY information, including EOY Records for RTI employments, forms P14 for non-RTI employments, P11D, and targeted review forms, for example R40, 575, or P810, have been received. In the case of JSA claims that have ceased in-year only, as forms P14U will not be received, in place of P14U reconciliation will use the appropriate P45(1) U details (PAYE93010)
    Or
  • Manually following the input of a targeted review form in IABD (see action guide tax40002) and / or P60 details in Employment Summary (see PAYE61186)

Once triggered the process looks at the information (for example IABD entries and indicators) held on the customer’s record for the year and where

  • The record is marked as SA, the system does not perform a tax calculation and instead marks the record as ‘Reconciled - SA’ with no further action being taken for that tax year
  • For a manually triggered reconciliation, the record either has a date of death or the Deceased indicator set and details of a Capacitor, Administrator or Personal Representative are not held - reconciliation will not take place and the system will display an appropriate message instructing you how to proceed
  • The record for the year shows that the individual did not have an employment, the system marks the record as ‘Reconciled - No Employments’ with no further action taken for that tax year

At this point, the system looks at whether or not an earlier year than the one to be reconciled remains un-reconciled. Where it does

  • For cases where the system is looking to automatically reconcile the later year, no further action takes place. The case concerned will be output as a work item at a later date to allow it to be reviewed manually
  • For cases where reconciliation is triggered manually, you will receive an appropriate online message to inform you that the year cannot be reconciled as an earlier year remains un-reconciled

In all other cases the system applies a tax calculation to the case and in doing so determines whether or not

  • A single year reconciliation should be undertaken (PAYE96210)
    Or
  • Multiple year reconciliation should be undertaken (PAYE96201)

The outcome of the tax calculation(s) for the year(s) concerned will then compare the amount of tax paid in the tax year against the accepted liability for that year and where the outcome

  • Confirms that the amount of tax paid is equal (within set tolerances, PAYE93075) to the amount of tax due, the record for the year is marked as ‘Reconciled - Balanced’
  • Identifies an amount of overpaid tax, the record for the year is marked as ‘Reconciled - Overpaid’. Further details of how processing overpayments then proceeds is given under the appropriate heading below
  • Identifies an amount of underpaid tax, the record for the year is marked as Reconciled - Underpaid’. Further details of how processing underpayments then proceeds is given under the appropriate heading below

The Reconciliation screens within the PAYE Service show the results of reconciliations only and where the customer is overpaid or underpaid outside tolerances for a year, you will need to review their Accounting (PAYE98000) records to determine how the overpayment / underpayment concerned has been dealt with.

Where the PAYE record has been reconciled and an unexpected form P14 and / or P11D is received, the year concerned will automatically be re-reconciled to include the new income/benefits arising.

You may also be required to trigger re-reconciliation of a year manually due to

  • Additional / new details being entered into IABD that result in a change to the customers tax liability for the year
  • Deleting details from the customers record (for example a duplicated employment) that have previously been included in a reconciliation / tax calculation for the year

Where re-reconciliation of a year is required you can do so by either selecting the Reconcile [Submit] button on the ‘Reconciliation Summary’ screen or through the IABD screen (action guide tax40002).

In cases where a work item (for example work item 102, action guide WMI102) is open and the case is reconciled for a year later than the one the work item refers to, as the result of the work item calculation will not have been approved / submitted the result of the calculation will not be taken forward into the later reconciliation(s). For example, if work item 102 is open for CY-3 and it shows an overpayment of £100, if the case is reconciled for / from CY-2 the calculation for that year will not bring the CY-3 overpayment forward. To account for this, in cases where you notice a work item attached to an earlier years tax calculations is open and you are looking to reconcile a later year, you will need to clear the work item and trigger reconciliation from that year onwards to ensure all relevant under / overpayments are considered within the calculations.

Where a PAYE record has not been reconciled for CY-1 by a given date towards the end of the current year or it can be ‘Reconciled - Balanced’ for CY-1 but an earlier year remains un-reconciled, work items will be output for clerical clearance. The work item types are as follows

  • Work item 302 - ‘Unlinked P11D held’, see action guide tax40133 WMI302
  • Work item 305 - ‘Earlier tax year not reconciled’, see action guide tax40036 WMI305
  • Work item 309 - ‘P800 cancelled’, see action guide tax40066 WMI309
  • Work item 440 - ‘CY-1 not reconciled’ - customer is deceased, see action guide tax40036 WMI440
  • Work item 441 - ‘CY-1 not reconciled’ - TRN case, see action guide tax40036 WMI441(AA) and / or action guide tax40036 WMI441(AO)
  • Work item 442 - ‘CY-1 not reconciled’ - customer in receipt of JSA benefits, see action guide tax40036 WMI442(AA) and / or action guide tax40036 WMI442(AO)
  • Work item 443 - ‘CY-1 not reconciled’ - customer is abroad; there is an earlier year open and / or there is a missing P11D, see action guide tax40036 WMI443
  • Work item 444 - ‘CY-1 not reconciled’ - cannot be reconciled but does not match any of the other work item 440 to 443 reasons, see action guide tax40036 WMI444(AA) and / or action guide tax40036 WMI444(AO)
  • Work item 445 - ‘EYU Update resulting in negative pay’, see action guide tax40036 WMI445
  • Work item 447 - ‘Inhibit auto reconciliation indicator set’, see action guide tax40214 WMI447

Only one work item in the range 440 to 440 will be created. You will need to check if any of the other issues affect the case you are working.

Overpayment identified

Automatically triggered reconciliation

Reconciliation is triggered automatically when all expected EOY information, including EOY Records for RTI employments, forms P14 for non-RTI employments, P11D, and targeted review forms, for example R40, 575, or P810, have been received. This is done by the system and is not initiated by the operator. Where this is done and the overpayment identified exceeds the tolerance (PAYE93075), where the system

  • Identifies reasons why the customer is overpaid - There will be a maximum of 19 over and underpayment messages displayed. If there are 20 or more reasons there will be a message of ‘We have displayed 20 explanations below’. The customer’s PAYE Service Reconciliation and Accounting records will be updated with details of calculation(s) issued

Manually triggered reconciliation

Reconciliation can be triggered manually when all expected EOY information, including EOY Records for RTI employments, forms P14 for non-RTI employments, and P11D have been received and you capture information, for example form R40, P810, or P87 details, on to IABD. In a case where reconciliation is triggered manually and the system determines that a tax calculation is required, on triggering reconciliation you will be taken to

  • The Tax calculation screen (PAYE93037) for the year concerned where a single year only reconciliation can be undertaken
    Or
  • The Multiple Years Reconciliation Summary screen (PAYE93016) where a multiple year reconciliation can be undertaken

In both cases you will be required to review and if necessary amend the tax calculation(s) concerned before you approve them for issue.

Underpayment identified

Automatically triggered reconciliation

Reconciliation is triggered automatically when all expected EOY information, including EOY Records for RTI employments, forms P14 for non-RTI employments, P11D, and targeted review forms, for example R40, 575, or P810, have been received. Where this is done and the underpayment identified exceeds the tolerance (PAYE93075), where the system

  • Identifies reasons why the customer is underpaid - There will be a maximum of 19 over and underpayment messages displayed. If there are 20 or more reasons there will be a message of ‘We have displayed 20 explanations below’ and the customer’s PAYE Service Reconciliation and Accounting records will be updated with details of calculation(s) issued

Manually triggered reconciliation

Reconciliation can be triggered manually when all expected EOY information, including EOY Records for RTI employments, forms P14 for non-RTI employments, and P11D have been received and you enter information, for example form R40, P810 or P87 details, on to IABD. In a case where reconciliation is triggered manually and the system determines that a tax calculation is required, on triggering reconciliation you will be taken to

  • The Tax calculation screen (PAYE93037) for the year concerned where a single year only reconciliation can be undertaken
    Or
  • The Multiple Years Reconciliation Summary screen (PAYE93016) where a multiple year reconciliation can be undertaken

In both cases you will be required to review and if necessary amend the tax calculation(s) concerned before you approve them for issue.

In all underpayment cases, whether triggered manually or automatically, where the underpayment is

  • Above the limit of £3,000 for collection through the customer’s tax code or, it is less than £3,000 and it cannot be collected through a coding adjustment (PAYE12080), the system will issue up to two voluntary payment letters and then try to transfer the underpayment to SA (PAYE90011)
  • Less than the £3,000 limit and it is possible to collect it through a coding adjustment, the underpayment will remain on the customer’s record and will be included in the annual coding review to be collected in their CY+1 tax code

Deceased cases

At the point at which you trigger reconciliation for a deceased case, the PAYE Service will check the date of death recorded on the viewed record to determine whether the time limit within which we can legally assess the income concerned (CH54200) has expired. In cases where the time limit

  • Has not expired, the case will follow normal reconciliation processing procedures
  • Has expired, you will receive a message of ‘Deceased case - The assessment time limit has expired’ or ‘31 January following date of death plus years define TAXTIME_after current date’. Where either message is received and the assessing time limit has expired, you

    • Will not be required / able to undertake any further reconciliations for the case on the PAYE Service
    • Should clear all open years up to and including the year in which the customer died as ‘Reconciled - Balanced’

However, due to the time limits set within the PAYE Service, in a small number of cases, you may still receive one of the ‘Deceased case’ messages when the case concerned has not exceeded the assessing time limit. Where this is so and in these cases only (that is, cases within the time limit that cannot be reconciled on the PAYE Service), you should proceed as follows

  • Use the SEES P800 PAYE Calculator to prepare the tax calculation(s) required to settle the deceased’s liability
  • Having regard to the final outcome of the calculation(s), where the outcome is an

Underpayment, if the underpayment is

* Less than £300, clear all open years including the year in which the customer died as ‘Reconciled - Balanced’
* Between £300 and £1,250, submit the case to an experienced officer to allow them to consider issuing Self Assessment returns to the date of death
* Over £1,250, issue a Self Assessment return to the date of death

Overpayment

* Issue the tax calculation(s) along with a note / letter advising that a payable order in respect of the overpayment will follow
* Arrange for the appropriate manual payable order to be issued - see action guide tax40031

Incapacity Benefit / State Pension Lump Sum Deferral / ESA cases

Where Incapacity Benefit (IB), State Pension lump sum deferral and ESA are included in a tax coding / IABD; or are the latest employment on PAYE Service, at the point of reconciliation PAYE Service will ignore IABD entries and look for a P14 from the following sources

Incapacity Benefit (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

State Pension lump sum deferral (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

ESA (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Use of EYAs in reconciliation

EYAs can be used in a Reconciliation calculation in the following circumstances

  • Customer is due FRE / PSUB / EXP for CY and earlier years

And

  • Customer has not claimed a repayment, for example the words ‘cheque’ or ‘payable order’ are not included in the claim

    • Give EYA in CY code
  • Customer has claimed a repayment and the years are overpaid (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

    • Issue multiple years calculations including the actual expense in the calculation
  • Customer has claimed a repayment and some or all of the earlier years are overpaid (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

    • Between April and January - give EYA in CY-1 calculation
    • After 31 January - follow the Process Flow and where required issue manual payable orders for the years (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

If the customer has not included the words ‘cheque’ or ‘payable order’ but have specified that they do not want an adjustment in their CY code, treat this as a claim to repayment.