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HMRC internal manual

PAYE Manual

Accounting: end of year: underpayment spreading

The Accounting function allows you, if permitted, to spread the collection of an underpayment over more than one year, or make a change to the existing spread of an underpayment. The underpayment must have passed automatic coding checks for the whole amount to be coded in one year and have a status of ‘code’ in Accounting.

The collection of an SA underpayment cannot be spread over more than one year. If there is a potential underpayment or former potential underpayment coded CY, that after reconciliation becomes an actual underpayment, either for the same amount or less, then that amount together with any other amount coded in CY cannot be spread.

An error message ‘Cannot alter 1st year coded amount due to previous PUP’ will be produced. If the potential underpayment increases after reconciliation, the balance of the actual not already coded out in CY will be available for spreading across CY+1 and later years once the balance has been picked up at Annual Coding and included in the CY+1 code.

Spreading the collection of an underpayment will always be initiated by the customer requesting this to take place. The circumstances when a customer may request this are

  • Previously an underpayment was coded out in one year (for example CY+1) and the customer claims hardship
  • Previously the underpayment was coded out over more than one year (for example CY+1 and CY+2) and the customer claims hardship

See action guide tax40075.

From 2nd July 2017 potential underpayments will no longer be calculated. From that date potential underpayments (PUPs) will be called In Year Adjustments (IYAs) and these will be collected through the tax code in the current year.

In Year Adjustments can be spread between CY and CY+1 or the full amount can be spread in CY+1. 

Note: Where underpayment spreading has taken place, the amount of underpayment included in spreading will override any result for the year in reconciliation summary.