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HMRC internal manual

Self Assessment Manual

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HM Revenue & Customs
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Amend payment: claim to adjust payments on account: introduction

Making a claim

Taxpayers can make a claim to reduce or increase the payments on account they expect to pay. A claim can also be made by an agent on behalf of the taxpayer.

A claim to adjust payments on account is made where the taxpayer believes

  • The expected liability under SA, after deducting tax paid at source, but including any higher rate liability, will be less than that determined using the rules for calculating payments on account (see SAM1100), or
  • There will be no SA liability or that any such liability will be covered by tax deducted at source

Notes:

1. Expected liability
   
  The expected liability is the total estimated liability to income tax and Class 4 NIC for the year on all sources including any giving rise to higher rate tax.
From the 2015-2016 tax year, the Class 2 NICS amount paid by self-employed customers will be collected through SA as part of the SA Balancing Charge. Class 2 NICS will not be included when calculating the expected laibility for calculating payments on account.    
    Legislation requires the total income tax and Class 4 NIC liability to be estimated before deciding whether to make a claim to reduce. This means that the liability on all sources must be considered. The estimate of the liability must include not only higher rate tax on taxed investment income but also the tax/NIC on any new source.
    For example, taxed income assessed in say 2013-14 is not used in the calculation of 2014-15 payments on account. However, when considering whether to make a claim to reduce payments on account in this example, a taxpayer must have regard to the total estimated liability for 2014-15 including higher rate tax.
    You are not expected to question whether a claim has been made on the correct basis. But where you receive an enquiry, either with or without a claim, you should explain that all sources are to be considered when estimating the liability for the year.
    The expected liability under SA might be lower because
    * Income has decreased
    * Allowances or reliefs are higher
    The expected payments on account can decrease even though the total liability under SA has increased. This might happen if a greater proportion of the total income is taxed at source.
  2. Claim to tax relief under the EIS or VCT scheme
    If a taxpayer wishes to claim income tax relief under the EIS or VCT scheme during the year, and it is not possible to make an adjustment to the PAYE code, relief can be given against their payments on account. To receive the relief the taxpayer must make a claim to adjust in the usual way, giving full consideration to their expected final liability for the tax year. If the claim they make proves to be excessive when the return is received then interest will be charged on any reinstated amount from the relevant due dates of the payments on account. Relief must not be given through the SA system in any other way.

Processing a claim

All Network Offices and Banking Operations (Cumbernauld and Shipley) can process a claim to adjust payments on account if they have responsibility for the taxpayer record. An office receiving a claim to adjust payments on account must give the claim priority attention.

Before a request to adjust payments on account is processed, a check is made that a valid claim has been received. Where a claim has been made in writing and is invalid, you should write to the taxpayer giving an explanation of why the claim cannot be accepted, using the SEES letter SA811.Where a claim has been made online and is invalid, it will be automatically rejected and function MAINTAIN SA NOTES automatically updated to record details of the claim and the reason for rejection.

A valid claim is always effective for both payments on account. The adjustment claimed is divided equally between the two payments on account subject to the rules for adjusting payments on account (SAM1110).

Processing of a claim may result in the taxpayer’s SA record becoming overpaid. Any overpayment remains on the taxpayer record unless the taxpayer asks for a repayment to be made. The consequences of amending payments on account (SAM1120) depend on the state of the taxpayer record. Penalties may be charged where fraudulent or negligent claims are made (see EM4660 Penalties).

Where a valid claim has been made in writing or on form SA303, but not on a Tax Return, you should issue letter SA614 (available on SEES in Forms and Letters) to the taxpayer and/or his agent where appropriate. The SA614 letter advises of the interest implications if the payments on account are reduced by too much. The letter can also be used to acknowledge receipt of any claim where there is likely to be a delay before the statement is issued.

Where a valid claim has been made online by way of a Structured Action Request, the payments on account will be adjusted automatically and function SA NOTES automatically updated to record that the adjustment has been made. Where a request to reduce a payment on account is made on a return, SA NOTES will not be updated.

History of claims

A full history of the payments on account, including the date and reason or origin of each amount held, can be viewed. You can view the history by using the [View History] button in function MAINTAIN PAYMENTS ON ACCOUNT. Function MAINTAIN PAYMENTS ON ACCOUNT is accessed from function VIEW STATEMENT.

Note: The word ‘interims’ is sometimes used to describe the payments on account.

Structured Action Requests (SAR)

Where a claim to reduce Payments on Account is received by way of a Structured Action Request, an automatic SA Note will be created showing a ‘reason code’. The codes and their corresponding meanings are shown below:

Code Reason for claim
   
1 ‘My business profits are down/my business has ceased’
2 ‘Other Income has gone down’
3 ‘Tax allowances and reliefs have gone up’
4 ‘Tax deducted at source is more than the previous year’