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HMRC internal manual

Self Assessment Manual

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HM Revenue & Customs
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Repayments: issue repayment: automatic freestanding credits

Automatic freestanding credits are created following the processing of a 1st version of a return that includes a Schedule 1B claim to relief. The SA system will automatically allocate the correct Effective Dates of Payment to these credits.

Note: Schedule 1B claims are those affecting two or more years. They include carry back of pension relief, carry back of losses, farmer’s averaging and literary and artistic spreading.

In order to assist with the understanding of how effective dates of payment are allocated to the automatic freestanding credits and the rules under which these credits are allocated, 6 examples are provided below.

These examples are based on entries that may appear in boxes 14 and 15 on the Tax Calculation Summary page TCS 2 for 2007-08 onwards (boxes 18.5 and 18.8 on the SA return 2001-2002 to 2006-2007). Note: The Tax Calculation Summary will only be present and completed if the taxpayer has chosen to calculate the liability.

Box 14 Entry only

All payments made on time

2006-07 POA 1 due 31/01/2007 £500 (paid 31/01/2007)

2006-07 POA 2 due 31/07/2007 £500 (paid 31/07/2007)

2006-07 BCD due 31/01/2008 £1200 (paid 31/01/2008)

2007-08 POA 1 due 31/01/2008 £1100 (paid 31/01/2008)

Liability becoming due, 2007-08 POA 2 due 31/07/2008 £1100

2007-08 return filed 10/05/2008 that includes a Schedule 1B claim to relief

2007-08 balancing charge £500, due 31/01/2009

Entry in box 14 £2500

Result: Automatic freestanding credit created of £2500 with EDP 10/05/2008

The full amount of this FSC is repayable if a valid claim is held, as the liability for the earlier year is paid in full. However any automatic repayment requested for the later year will be restricted, as with all repayment claims on a return, in order to retain sufficient credit to cover that year’s balancing charge, if applicable.

In this example, repayment supplement is not payable on the FSC amount unless it is repaid after 31/01/2009, in which case RPS is payable from this date to the projected date of repayment.

Box 14 Entry only

Liabilities outstanding when claim received

2006-07 POA 1 due 31/01/2007 £500 (unpaid)

2006-07 POA 2 due 31/07/2007 £500 (unpaid)

2006-07 BCD due 31/01/2008 £1200 (unpaid)

2007-08 POA 1 due 31/01/2008 £1100 (unpaid)

Liability becoming due, 2007-08 POA 2 £1100 due 31/07/2008

2007-08 return filed 10/05/2008 that includes a Schedule 1B claim to relief

2007-08 balancing charge £500, due 31/01/2009

Entry in box 14 £2500

Result: Automatic freestanding credit created for £2500 with EDP 10/05/2008

The FSC is set against outstanding liabilities for the previous year. RPS is not payable in this example as the EDP of the FSC is later than the Relevant Due Date(s) of the charge(s) against which the FSC is to be set.

Box 15 Entry only

Return filed after 31 July and all payments made on time

2006-07 POA 1 due 31/01/07 £500 (paid 31/01/2007)

2006-07 POA 2 due 31/07/07 £500 (paid 31/07/2007)

2006-07 BCD due 31/01/08 £1200 (paid 31/01/2008)

2007-08 POA 1 due 31/01/08 £1100 (paid 31/01/2008)

2007-08 POA 2 due 31/07/08 £1100 (paid 31/07/2008)

2007-08 return filed 30/09/2008 that includes a Schedule 1B claim to relief

2007-08 balancing charge £500, due 31/01/2009

Entry in box 15 £2500

Result: Automatic freestanding credits are created as follows

  • £500 with EDP 31/01/2009
  • £2000 with EDP 30/09/2008 that is automatically repaid

No repayment supplement is payable in this example unless the repayment is made after 31/01/2010, in which case RPS will be payable from this date to the projected date of repayment.

The following two examples highlight a particular situation where an automatic freestanding credit could be allocated to the wrong liability resulting in an interest charge 

Box 15 Entry only

Return filed before 31 July and all payments made on time. Relief due exceeds the Balancing charge debit for the return year.

2006-07 POA 1 due 31/01/2007 £500 (paid 31/01/2007)

2006-07 POA 2 due 31/07/2007 £500 (paid 31/07/2007)

2006-07 BCD due 31/01/2008 £1200 (paid 31/01/2008)

2007-08 POA 1 due 31/01/2008 £1100 (paid 31/01/2008)

2007-08 POA 2 due 31/07/2008 £1100

2007-08 return filed 10/05/2008 with a balancing charge and Schedule 1B relief claimed

2007-08 Balancing charge £500 due 31/01/2009

Entry in box 15 £2500

Freestanding credits created as follows

  • £500 with EDP 31/01/2009
  • £1100 with EDP 31/07/2008
  • £900 with EDP 10/05/2008 automatically repaid

No repayment supplement is payable in this example unless the repayment is made after 31/01/2010, in which case RPS will be payable from this date to the projected date of repayment.

Box 15 Entry only

Return filed before 31 July and all payments made on time. Relief does not exceed the Balancing charge due for the return year.

2006-07 POA 1 due 31/01/2007 £500 (paid 31/01/2007)

2006-07 POA 2 due 31/07/2007 £500 (paid 31/07/2007)

2006-07 BCD due 31/01/2008 £1200 (paid 31/01/2008)

2007-08 POA 1 due 31/01/2008 £1100 (paid 31/07/2008)

2007-08 POA 2 due 31/07/2008 £1100

2007-08 return filed 10/05/2008 with a resulting balancing charge and Schedule 1B relief claimed.

2007-08 Balancing charge £1600 due £31/01/2009

Box 15 £800

Freestanding credits created as follows

  • £800 with EDP 31/01/2009 to be allocated against 2007-08 POA 2. If payment subsequently made to cover this liability, then freestanding credit will need to be reallocated

No repayment supplement is payable in this example unless repayment is made after 31/01/2010, in which case RPS will be payable from this date to the projected date of repayment.

Both Box 14 & 15 Entries

All payments made on time

2006-07 POA 1 due 31/01/2007 £500 (paid 31/01/2007)

2006-07 POA 2 due 31/07/2007 £500 (paid 31/07/2007)

2006-07 BCD due 31/01/2008 £1200 (paid 31/01/2008)

2007-08 POA 1 due 31/01/2008 £1100 (paid 31/01/2008)

Liability becoming due, 2007/08 POA 2 due 31/07/2008 £1100

2007-08 return filed 10/05/2008 with a resulting balancing charge and Schedule 1B relief claimed

2007-2008 balancing charge £500, due 31/01/2009

Entry in box 15 £1000

Entry in box 14 £800

Result: Freestanding credits are created as follows

  • £500 with EDP 31/01/2009
  • £500 with EDP 31/07/2008
  • £800 with EDP 10/05/2008 of which £200 is automatically repaid

No repayment supplement is payable in this example unless repayment is made after 31/01/2009, in which case RPS will be payable from this date to the projected date of repayment.

Note: Where relief is due but there are charges for the return year that are not yet within the ‘becoming due’ period (usually 45days), the computer system will still automatically create freestanding credits to cover these charges and retain them on the record. Any surplus relief will be repaid automatically if requested. If the taxpayer subsequently requests repayment of the retained freestanding credits, then these can be repaid clerically but the taxpayer should be advised of the late payment interest implications should payment of the charges for which these freestanding credits have been created not be paid by their due date(s).

Reallocation of automatic freestanding credits

Where due to a reduction in the charge to which an automatic freestanding credit has been set, the freestanding credit is reallocated by the SA computer system to another charge within the same UTR, any repayment supplement payable will be calculated automatically.