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HMRC internal manual

PAYE Manual

From
HM Revenue & Customs
Updated
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Reconcile individual: end of year reconciliation: net of tax arrangements

A full explanation around net of tax arrangements, employers obligations and the initial action to take on the PAYE Service record, can be found at PAYE82001 (EPAPP5).

Notes: 

1. Where you are notified that a net of tax arrangement is in place and the decision is reached that an NT coding is appropriate for CY-1, CY or CY+1, the Inhibit Automatic Reconciliation signal should be set on the PAYE Service record CY (if the NT code should apply to CY-1).
   
2. There is currently no facility to record a non-refundable tax credit on the PAYE Service. Guidance is available at PAYE93036 on how to insert a notional tax credit onto the PAYE Service.

The following guidance explains the action to take once the employer has filed forms P35 / P14 and you receive a list of employees affected by the arrangement.

Where the list is received and P14 is not on the PAYE Service pay / tax summary

  • Update the customer’s IABD record in accordance with PAYE93036 to give the notional tax credit
  • Unset the Inhibit Automatic Reconciliation indicator (PAYE93015) for CY-1. This will allow the case to reconcile automatically (to include the notional tax credit recorded above) when all information required to reconcile the year is held on the customer’s record
  • If not already set and the employment concerned is ongoing, set the Inhibit Automatic Reconciliation indicator (PAYE93015) for CY
  • Update Contact History with details of the action taken

Where the list is received and P14 is on PAYE Service in pay / tax summary

  • Update the customer’s IABD record in accordance with PAYE93036 to give the notional tax credit
  • Reconcile the year
  • If not already set and the employment concerned is ongoing, set the Inhibit Automatic Reconciliation indicator (PAYE93015) for CY
  • Update Contact History with details of the action taken