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HMRC internal manual

PAYE Manual

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HM Revenue & Customs
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Reconcile individual: in-year reconciliation: cessation repayments

If a cumulative code has been operated, a proportion of the tax-free personal allowances will have been given each week or month. If someone stops work part way through the year, it is likely that he or she will not have been given all the personal allowance due. If they do not claim Jobseeker’s Allowance, taxable Incapacity Benefit or Employment and Support Allowance, it is likely that they will have paid too much tax and a refund will be due.

If a refund is due, and is claimed before the end of the tax year in which it was deducted, this will result in an in-year cessation repayment.  If the repayment is claimed as a result of a trivial commutation or you should refer to action guide ‘Request for in-year repayment’ – P53 / P53(Z) /
P53Z(DB) / P55 / P55(DB) available on the Personal Tax Operations Guidance Gateway.

You can repay during the year of deduction in the following cases

  • when the individual is unemployed and does not claim Jobseeker’s Allowance, Incapacity Benefit after 28 weeks (this does not include Regulation 138 claims) or taxable Employment and Support Allowance
  • on final cessation of employment for the year where the customer is starting self employment (see ‘Cessation repayments: SA cases’ below)
  • on final cessation of employment
  • when an individual dies
  • when you increase the tax code of a personal or domestic employee where the employer uses cards P12
  • under Regulation 138, which prevents the Independent Holiday Fund from repaying to an employee any tax deducted and provides that HMRC may make an in-year repayment. There is no defined procedure. The individual can ask HMRC for a repayment in the tax year, and should simply send a request and the certificate of tax deducted to HMRC. HMRC may ask for further information, as set out in Regulation 138 and may then make a repayment. Matters can of course be reviewed in full at the end of the tax year

The remainder of this subject is presented as follows

Claim forms

Claims for an in-year repayment should be made on form P50 or P53 unless the customer has received a Pension Flexibility refer to PAYE94055 Or for Lump sum death benefit refer to PAYE94058.

In the following circumstances a claim should be made by completing form P50:

  • a pension lump sum (formerly known as trivial commutation payments)
  • annuity commutation case
  • the customer is a pension lump sum or annuity commutation and is a non-resident
  • the claim is made under Regulation 138 in which case we cannot insist upon a form P50
  • work has stopped because the individual has gone abroad when a form P85 should be completed

Where the individual does NOT have any other PAYE source in the tax year.

In the following circumstances a claim should be made by completing form P53:

  • a pension lump sum (formerly known as trivial commutation payments)
  • annuity commutation case
  • the customer is a pension lump sum or annuity commutation and is a non-resident
  • the claim is made under Regulation 138 in which case we cannot insist upon a form P50
  • work has stopped because the individual has gone abroad when a form P85 should be completed

Where the individual has another PAYE source in the tax year.

Cessation repayments: SA cases

Before you make any repayment, you should determine the customer’s tax position as at the date their employment was terminated.  If at that date, they satisfied the SA criteria in that the total taxable income before allowances are set off exceeds £100,000

  • reactivate or set up an SA record see guidance included in action guide ‘Potential SA case’ available on the Personal Tax Operations Guidance Gateway
  • advise the customer, using OCA177, that no in-year repayment can be made because they are now an SA taxpayer

For Pension flexibility refer to PAYE94055, or Lump sum death benefit refer to PAYE94058

For cases where a cessation repayment claim is made on the basis that the customer has become self employed and the claim is made prior to an SA record being reactivated or set up, you must deal with the claim before reactivating or setting up the SA record.

For cases where a cessation repayment claim is made on the basis that the customer has become self employed and the claim is made after an SA record has been reactivated or set up, you will be unable to process the claim on NPS and you should

  • Amend the P45 Part 1 figure on the NPS record if you hold details of a lump sum termination / redundancy payment which is not reflected in the P45 Part 1 figure, for example, if details of the payment have been provided in a letter rather than on the P45
  • Calculate the repayment due manually by using the SEES R37 PAYE Calculator
  • Issue the R37 SEES calculation to the customer along with a note explaining that a repayment in respect of the overpayment will follow
  • Deal with the repayment by creating a freestanding credit on the SA record (SAM110082 refers)

For cases where you need to set an NPS repayment against an SA charge, see PAYE91090.

Individual is a non-resident

If the individual is a non-resident, you must not issue a form P53 as this does not contain enough information to enable you to deal with the claim. If the individual does not fall within the SA criteria, the claim should be made on form R43. If however, the individual meets the SA criteria, set them up in Self Assessment (if they are not already) as an SA return is to be completed.

If the individual contacts you by telephone and there is an indication that they are a non-resident, you should ask them to contact HMRC on 0300 200 3300 (or from outside the UK 44 151 210 2222).

Sources of evidence

The following are sources of evidence to support an in-year cessation repayment

  • form P45 (see action guide ‘In Year Reconciliation – Missing leaver FPS / P45 details’ for details of the checks that you must make before accepting a form P45)
  • form P12R provided by the Employer Section where the individual is a domestic or personal employee
  • a statement issued by the paying authority to members of the reserve and auxiliary forces
  • form P403(HP) where holiday pay is paid under deduction of tax by a stamp fund scheme
  • a certificate issued by the employer where the employee has received a late payment after leaving work

Personal Allowance

Where an in-year cessation repayment or reason for cessation is ABROAD all or some of the personal allowances will have been used for that year.
If further employment is taken up then end of year reconciliation will calculate any underpayment of tax due to duplication of allowances. Should a further repayment be claimed, any resulting underpayment should be dealt with as detailed at PAYE94035.

A PAYE source ceases but other live PAYE source(s), for example occupational pension, remain on employment summary

Form P50 should not be issued in these cases as you will not be able to process an in-year repayment on NPS where there is a live source on employment summary.

If you receive a request for repayment

  • do not send the pay and tax details from the ceased source as previous pay and tax to a live PAYE source which started on, or before, 6 April in the year of the claim
  • you should review the codes that have been in operation. Where allowances had been allocated to the ceased source consider adjusting the allowances so the tax paid at the date of cessation would be correct with the revised allowances. The unused allowances at the ceased source can then be reallocated to any other continuing source

Note: If you are able to reallocate the allowances to give the customer the benefit of the unused allowances you will need to ensure that the P45 Parts 2 and 3, from the ceased source, are not handed in to a new employer.

In some cases the reallocation of the allowances will not result in the customer receiving the correct repayment, for example where they have not paid enough, or any, tax at the remaining source(s). In these cases the repayment will be made after the year end as part of the NPS end of year reconciliation process (PAYE93001).

Further guidance can be found in action guide ‘Reallocating allowances from a ceased PAYE Source’ available on the Personal Tax Operations Guidance Gateway.

In exceptional circumstances, where the customer complains or claims hardship it may be necessary to issue a provisional repayment (action guide for ‘issuing a manual payable order / repayment’ available on the Personal Tax Operations Guidance Gateway).

Estimated benefits figures can be used for in-year repayments where employment related benefits are included in the code and the benefits do not fluctuate greatly from year to year. Where an in-year cessation repayment is requested you should apportion the benefit details to the date of leaving; with the exception of medical benefit which should only be apportioned if you have information that it should be. If appropriate remove the benefits from CY+1. This will relieve the burden on employers, as you will only need to ask the customer to contact their employer for details if the benefits fluctuate greatly from year to year.