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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 a potential underpayment or 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.

2008-09 and / or 2009-10 only

You do not have to consider hardship if the customer requests to spread any underpayments that arose in either of these two specific years.

Any agreement to spread the collection of an underpayment relates to that underpayment only. The normal collection rules apply to any subsequent further underpayment.

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