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HMRC internal manual

Self Assessment Manual

From
HM Revenue & Customs
Updated
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Transfer of liability: transfer from PAYE to SA: SA stranded underpayments

An SA stranded underpayment can arise where the coding out of an SA balancing payment through PAYE has proved wholly, or partly unsuccessful. The underpayment will then need to be transferred back into SA as a charge on the taxpayer’s SA record.

Taxpayer remains in SA and has a continuing PAYE source

No special action will be required to transfer a balancing payment back into SA where the taxpayer remains in SA and has a continuing PAYE source. For example, a balancing payment for 2011-12 is coded out in 2013-14 but PAYE deductions for that year do not recover the liability. When processing the SA return for 2013-14 an adjustment will be made for any underpayment for an earlier year included in the PAYE code for 2013-14.

However in exceptional circumstances following the automatic transfer of an SA underpayment to PAYE, it may become obvious that the underpayment is not likely to be collected in the following or subsequent years and is merely being carried forward each year. This will happen for example where the taxpayer does not have sufficient earnings or does not pay tax. If you identify such a case in your day to day work you should

  • Send SEES letter OCA43, available from SEES - Forms and Letters, which explains why it is not possible to collect the underpayment through the tax coding. Advise that until the customers circumstances change and the income increases, an ‘x’ should be entered in box 2 on page TR5 on the Main tax return or box 12.8 on page 4 of the Short tax return, to prevent further underpayments being transferred into the code for collection
  • Transfer the underpayment back to the SA account using function CREATE SUNDRY CHARGE

    • Enter the year of the return in the ‘Year Ending 5 April’ field
    • Enter the ‘Charge Due Date’ this will be the later of
       
      31 January following the end of the year for which the payment is due
       
      Or
       
      6 weeks following reinstatement to SA
    • Enter the ‘Charge Type’, as ‘Net Underpayment’
    • Enter the underpayment amount to be included in the IT field (IT)
  • Update the PAYE record to reflect that the underpayment has been transferred to SA

Taxpayer remains in SA and PAYE source ceases

If the taxpayer ceases PAYE before the commencement of the year in which the SA balancing payment is coded it will be necessary to use the SA function CREATE SUNDRY CHARGE to enter the charge (under charge type SA ‘Stranded Underpayment’) on the taxpayer’s SA record. The charge can be amended if necessary using function MAINTAIN SUNDRY CHARGE.

Following the use of these functions a proportion of cases will be selected for quality checks. This is to ensure there has been no misuse of these functions and to monitor the quality of the work performed.

When an SA underpayment is transferred back from PAYE

  • The relevant due date for interest is to be given as the later of

    • 31 January following the end of the year for which the payment is due
    • 6 weeks following reinstatement to SA
  • Write to the taxpayer / agent explaining

    • Why the underpayment is being transferred back from PAYE
    • The date from which interest will be payable

Taxpayer has ceased SA and PAYE source subsequently ceases / becomes NNL

If the taxpayer ceases PAYE or the income falls significantly, cases will arise where the SA balancing payment can no longer be collected through the tax code.

Even though the taxpayer is no longer within SA, the balancing charge originated from a year when the taxpayer was within SA. It must therefore be brought back onto the taxpayer’s SA record using SA function CREATE SUNDRY CHARGE (under charge type SA ‘Stranded Underpayment’). The charge can be amended if necessary using function MAINTAIN SUNDRY CHARGE.

Following the use of these functions a proportion of cases will be selected for quality checks. This is to ensure there has been no misuse of these functions and to monitor the quality of the work performed.

Note: Do not issue an SA return in these cases.

When an SA underpayment is transferred back from PAYE

  • The relevant due date for interest is to be given as the later of

    • 31 January following the end of the year for which the payment is due
    • 6 weeks following reinstatement to SA
  • Write to the taxpayer / agent explaining

    • Why the underpayment is being transferred back from PAYE
    • The date from which interest will be payable

Revenue losses

The existing PAYE guidelines for Revenue losses should only be applied where the SA stranded underpayment relates to an SA taxpayer who has gone RLS. In all other cases, if remission is appropriate

  • The amount should be transferred back to SA. Transfer will be made either by the return or by use of function CREATE SUNDRY CHARGE, as appropriate (see above)
  • Refer the papers to the Recovery Office for consideration of remission

PAYE record

Existing procedures will need to be followed to update the taxpayer’s PAYE record when an SA balancing payment, coded out in PAYE, is transferred back to SA. Detailed guidance is given in the PAYE Manual business area ‘Reconcile Individual‘, section ‘End of Year Reconciliation’ PAYE93000).