Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

PAYE Manual

Reconcile individual: reconciling CY-4 to CY-2: reconciling multiple years - first year result

Where a multiple year reconciliation is triggered, the result of the first years calculation in isolation will be considered to see whether or not the year balances (exactly and / or within tolerances), is reconciled underpaid above tolerance or is reconciled overpaid above tolerances. Consideration will then be given to whether or not a potential underpayment (PUP) was held for the year and whether or not an underpayment or overpayment from an earlier year needs to be accounted for and the final / accepted position for the year will be dependant upon the outcomes found.

The rest of this subject is set out as follows

Cases reconciled balanced within tolerances
Cases reconciled underpaid above tolerances
Cases reconciled overpaid above tolerances

Cases reconciled balanced within tolerances

For the first year being reconciled, where the result (in isolation) is balanced exactly or an under or overpayment within tolerances arises, a check will be made to determine if a PUP is held for the year being reconciled.

Where a year can be reconciled balanced and a PUP is not held for the year, the year will be set to ‘Reconciled - Balanced’ and the system will progress to the next year to be reconciled.

Where a PUP is held for the year, and the year results in an overpayment within tolerances, the PUP arising in the year will be cancelled and the amount of the overpayment arising will be treated as the accepted result for the year.

Where a PUP is held for the year and the year results in an underpayment within tolerances, the system will determine if the actual underpayment is less than the PUP by £10 or more. Where it

  • Is, the actual underpayment will be accepted as the result for the year and the amount concerned will be carried forward into the next year to be reconciled
  • Is not, the PUP will be accepted as the result for the year and it will be carried forward into the next year to be reconciled

Where a PUP is held for the year and the actual underpayment is more than the PUP, the year will be ‘Reconciled - Balanced’, the PUP will be the accepted result for the year and it will be carried forward into the next year to be reconciled.

At this stage, that is after considering the PUP situation for the year, the system will determine whether or not an underpayment or overpayment from an earlier year needs to be accounted for. Where it does and the accepted result for the year being reconciled is either balanced and / or the amount of the PUP, the underpayment or overpayment concerned will be carried forward to a later year.

Once action on determining the position for the first year of the multiple year reconciliation has been completed, the system will move forward to determine whether the next year to be reconciled requires the ‘subsequent year’ rules (PAYE96265) or ‘final year’ rules (PAYE96270) to be applied to it.

Top of page

Cases reconciled underpaid above tolerances

For the first year being reconciled, where the result (in isolation) is an underpayment above tolerances a check will be made to determine if a PUP is held for the year being reconciled.

Where a PUP is not held, the actual underpayment calculated will be the accepted result for the year and the amount concerned will be carried forward into the next year to be reconciled.

Where a PUP is held for the year and the actual underpayment is more than the PUP, the system will subtract the PUP from the actual underpayment and where the result is

  • A difference within the underpayment tolerances (PAYE93075), the PUP will be accepted result for the year and it will be carried forward into the next year to be reconciled
  • A difference above the underpayment tolerances, the actual underpayment arising will be accepted as the result for the year and it will be carried forward into the next year to be reconciled

Where a PUP is held for the year the system will check to see if the actual underpayment is less than the PUP by £10 or more. Where it

  • Is, the actual underpayment will be accepted result for the year and it will be carried forward into the next year to be reconciled
  • Is not, the PUP will be the accepted result for the year and it will be carried forward into the next year to be reconciled

At this stage, that is after considering the PUP situation for the year the system will determine whether or not an underpayment or overpayment from a previous year needs to be accounted for. If it does and the amount brought forward is an

  • Underpayment, the underpayment concerned will be added to the accepted underpayment arising in the year being reviewed and the total of both amounts will be carried forward into the next year to be reconciled
  • Overpayment, the amount concerned (including supplement) will be offset against the accepted underpayment arising in the year being reviewed. Where the result of the offset is that the year being reviewed results in an underpayment or overpayment

    • Within tolerances the year will be set to ‘Reconciled - Balanced’ and the result will not be carried forward to the next year to be reconciled
    • Outside tolerances the appropriate result will be carried forward to the next year to be reconciled

Once action on determining the position for the first year of the multiple year reconciliation has been completed, the system will move forward to determine whether the next year to be reconciled requires the ‘subsequent year’ rules (PAYE96265) or ‘final year’ rules (PAYE96270) to be applied to it.

Changes to PAYE from 02 July 2017

From 02 July 2017, when we amend a customer’s code we will carry out a full calculation for the year. Where extra tax is due the new code will include an In Year Adjustment (IYA) and In Year Adjustment Restriction (IYAR) to collect the extra tax over the remaining weeks or months of the tax year. The tax code will be operated on a week 1 or month 1 basis (unless the underpayment is less than £15). This should mean that most of our customers pay the right tax and will not be overpaid or underpaid at the end of the tax year.

From the above date we will not calculate any further Potential Underpayments (PUPs) in tax codes. We will refer to the extra tax due as an In Year Adjustment (IYA) and the coding restriction will be described as In Year Adjustment Restriction (IYAR).

Transitional year 2017-18

Until 02 July 2017, when we amend a customer’s code and operate the new code on a week 1 or month 1 basis, we will calculate a potential underpayment (PUP) relating to the extra tax due for the earlier part of the year. PUPs created in the period 06 April 2017 to June 2017 will be carried forward for collection through the code in 2018-19.

From 02 July 2017, we will not create any new PUPs.  These will be replaced by In-Year Adjustments (IYAs). From that date, if we amend a code that includes a PUP, HMRC’s In-Year Calculator will do a full year calculation and work out whether the customer has paid the right tax to date. If extra tax is due, an In-Year Adjustment (IYA) will replace the existing PUP. You will not see a code including both a PUP and an IYA during the 2017-18 year.

Top of page

Cases reconciled overpaid above tolerances

For the first year being reconciled, where the result (in isolation) is an overpayment above tolerances a check will be made to determine if a PUP is held for the year being reconciled.

Where a PUP is not held the overpayment concerned (plus supplement) will be carried forward into the next year to be reconciled.

Where a PUP is held the PUP will be cancelled, and overpayment concerned (plus supplement) will be carried forward into the next year to be reconciled.

At this stage, that is after considering the PUP situation for the year the system will determine whether or not an underpayment or overpayment brought forward from a previous year needs to be accounted for. If it does and the result brought forward is an

  • Overpayment, the overpayment concerned will be added to the accepted overpayment arising in the year being reviewed and the total result will be carried forward into the next year to be reconciled
  • Underpayment, the amount concerned will be offset against the accepted overpayment arising in the year being reviewed. Where the result of the offset is that the year being reviewed results in an underpayment or overpayment

    • Within tolerances the year will be set to ‘Reconciled - Balanced’ and the result will not be carried forward to the next year to be reconciled
    • Outside tolerances the appropriate result will be carried forward to the next year to be reconciled

Once action on determining the position for the first year of the multiple year reconciliation has been completed, the system will move forward to determine whether the next year to be reconciled requires the ‘subsequent year’ rules (PAYE96265) or ‘final year’ rules (PAYE96270) to be applied to it.