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HMRC internal manual

Self Assessment Manual

Transfer of liability: regulations 72/81 and SA: amending tax credit

The normal options for the Revenue to amend details supplied on a return are

  • A correction (repair) within 9 months of receipt of the return
  • A Section 9A enquiry, within 12 months of the SA filing date
  • A discovery assessment, if the period available to open a Section 9A enquiry has expired

However, where the amendment is a reduction in PAYE tax credit, Regulation 185(5) and S59A(10) and S59B(8) are your authority to reduce the tax credit.

The precise action needed to adjust a case for matters such as directions where there has been a PAYE failure will vary, depending upon how the taxpayer completed the self assessment return. For example, both income and associated PAYE tax may have been omitted or income may have been declared but a PAYE credit may have been claimed. It is essential that the basis on which the employment pages have been completed is fully understood before any action is taken to adjust the position.


Reduction of PAYE credit

Where you have followed the advice in this section, and have then to reduce the PAYE tax credit given in the calculation of liability, refer the papers to your Compliance Manager. This action is necessary because you may not treat the adjustment as a repair to the return.

The self assessment may only be amended under the PAYE Regulations by

  • Enquiry

Or if the enquiry time limit has expired, or there has been an enquiry which is now closed

  • Making a discovery assessment under S29(1)(b) TMA 1970 (there was nothing in the taxpayer’s return to alert the Inspector to the fact that the self assessment was insufficient). Function CREATE REVENUE ASSESSMENT is used to enter the additional charge on the SA record.

Section 31 TMA governs the time at which S29 assessments become final, and S59B(6) TMA sets the due date for payment.

Increase in PAYE credit

Where you have followed the advice in this section, and have then to increase the PAYE tax credit given in the calculation of liability, you should

  • Invite the taxpayer to amend his or her self assessment to include the additional PAYE credit

Or if 12 months have passed since the filing date

  • Use SA function CREATE FREESTANDING CREDIT to enter the credit on the SA record. Following the use of this function the credit will be available for repayment or allocation against an SA charge

More detailed advice on creating a freestanding credit is provided in section ‘Issue Repayment’ in business area ‘Repayments’ (SAM10000 onwards)

Note: If the PAYE credit is a result of a Regulation 80(2) determination see ‘Reg 80(2) - Restricting PAYE Credit’ below.

Interest charges

Where additional liability under Section 59B(1) arises on the taxpayer following a direction under Regulations 72(5) or 81(4), interest is chargeable under Section 86 if the additional charge is not met by the filing date (normally 31 January).

When a Regulation 72(5) condition or 81(4) direction is made, any Regulation 82 interest from 19 April following the end of the PAYE deduction year up to the SA filing date (normally 31 January), that would otherwise be payable by the employer, is added to any Section 86 interest payable from the SA filing date to the date of payment.

Further advice on interest is available in the business area ‘Int/Pen/Surcharge’ (SAM60000 onwards).

Reg 80(2) - restricting PAYE credit

If the PAYE credit is a result of a Regulation 80(2) determination, the amount included must be restricted to the overall tax liability.

You must not repay any of the credit.

To calculate the Tax Credit due when processing the return

  • Calculate the liability by processing the Return excluding the amount of Tax Credit as a result of the Regulation 80(2) from box EMP 2.

Note: Any tax that was actually deducted in respect of that employment should be entered in box EMP 2 in the normal way

  • Where the calculation shows an amount due to the Revenue, a matching amount up to the level of the Tax Credit should then be added into box EMP 2 and the self assessment recalculated.

Example: The initial calculation shows £800.00 due and there is a PAYE Tax Credit of £1000.00. You should add £800.00 of this credit into box EMP 02

  • Where the calculation shows an amount overpaid, do not add any of the tax credit into box EMP 2.