Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Self Assessment Manual

From
HM Revenue & Customs
Updated
, see all updates

Compliance: enquiry work: contract settlement - payments on account - examples

 

 

In non-contract settlement cases, an amendment is made to the self assessment of the final enquiry year to reflect the final position and, as a consequence, the correct payments on account are automatically set up for the post enquiry year.

In contract settlement cases, the self assessment of the final enquiry year is not usually amended, so payments on account are not automatically set up for the post enquiry year. If the contract settlement has a due date on or before the balancing payment due date of the post enquiry year

 

  • Payments on account for that year are still dealt with in the SA system

And

  • Function AMEND RETURN FOR ENQUIRY or CREATE RETURN CHARGE FOR ENQUIRY is used (Revenue amendment type) to adjust the return charge of the final enquiry year to generate the correct payments on account for the post enquiry year

The examples below show you what accounting action is required on the SA record in contract settlement cases in which 2002-03 is the final year of enquiry

    • No payments on account for 2002-03 or those payments have been met in full at the time of negotiating the contract settlement (SAM31060)
    • Payments on account for 2002-03 are unpaid at the time of negotiating the contract settlement
    • Payments on account for 2002-03 are partly paid at the time of negotiating the contract settlement

Example 1

The facts of the case are as follows

  • Original payments on account for 2002-03 are £4000 each which were paid on the statutory due dates
  • SA return for 2002-03 shows liability of £10000 giving rise to a balancing charge of £2000, that is, £10000 less £8000 payments on account
  • Agreed additional tax resulting from the S9A enquiry is £5000 (unpaid)

Note: This revises the liability for 2002-03 to £15000

  • The unpaid balancing charge of £2000 and additional tax of £5000 (unpaid) included in the contract settlement

Action on acceptance of offer

  1. Use function MAINTAIN STANDOVERS to informally holdover the balancing charge of £2000
     
  2. Use function AMEND RETURN FOR ENQUIRY to amend the return or function CREATE RETURN CHARGE FOR ENQUIRY for 2002-03 to make the following entries

 

 

Field Current Amended
     
Income tax due after reliefs £10000 £15000.00

 

 

 

The effect of amending the Income tax due after reliefs figure to £15000 is to increase the payments on account for 2003-04 to the correct amount, that is, £7500 each.

Use function CREATE INFORMAL DISCHARGE for 2002-03 to discharge the £7000, namely the balancing charge of £2000 and the additional liability from the enquiry which are included in the contract settlement and do not need to appear again on the SA record for 2002-03.

The effect of discharging the £2000 is to reduce the balancing charge for 2002-03 to nil. On reducing the balancing charge to nil the computer also cancels the £2000 informally heldover on it.

The position on the SA record for 2002-03 is now as follows

 

  • 1st payment on account for 2002-03 £4000 (paid)
  • 2nd payment on account for 2002-03 £4000 (paid)
  • Balancing charge for 2002-03 nil

Example 2

The facts of the case are as follows

  • Original payments on account for 2002-03 are £4000 each (unpaid)
  • SA return for 2002-03 shows liability of £10000 giving rise to a balancing charge of £2000, that is, £10000 less £8000 payments on account
  • Agreed additional tax resulting from the S9A enquiry is £5000 (unpaid)

Note: This revises the total liability for 2002-03 to £15000

  • The unpaid payments on account of £8000, unpaid balancing charge of £2000 and additional tax of £5000 (unpaid) included in the contract settlement

Action on acceptance of offer

  1. Use function MAINTAIN STANDOVERS to informally holdover the £4000 on each of the payments on account and the balancing charge of £2000
     
  2. Use function AMEND RETURN FOR ENQUIRY to amend the return or function CREATE RETURN CHARGE FOR ENQUIRY for 2002-03 to make the following entries

 

 

Field Current Amended
     
Income tax due after reliefs £10000 £15000.00

 

 

 

The effect of amending the Income tax due after reliefs figure to £15000 is to increase the payments on account for 2003-04 to the correct amount, that is, £7500 each.

Use function CREATE INFORMAL DISCHARGE for 2002-03 to discharge the £15000. The £10000 being the payments on account / balancing charge for 2002-03 included in the contract settlement and the additional £5000 liability from the enquiry.

The payments on account of £8000 and the balancing charge of £2000 which were previously informally stoodover will be cancelled automatically by the informal discharge above.

 

Example 3

The facts of the case are as follows

  • Original payments on account for 2002-03 are £4000 each. £2000 paid on 31/03/2003 allocated against the first payment on account
  • SA return for 2002-03 shows liability of £10000 giving rise to a balancing charge of £2000, that is, £10000 less £8000 payments on account
  • Agreed additional tax resulting from the S9A enquiry is £5000 (unpaid)

Note: This revises the liability for 2002-03 to £15000

  • The unpaid payments on account of £6000, unpaid balancing charge of £2000 and additional tax of £5000 (unpaid) included in the contract settlement. Late payment interest on the £2000 paid on 31/03/2003 from the 31/01/2003 to its effective date of payment is included in the contract settlement

Action on acceptance of offer

  1. Use function MAINTAIN STANDOVERS to informally holdover
* £2000 on the 1st payment on account
* £4000 on the 2nd payment on account
* £2000 on the balancing charge
  1. Use function AMEND RETURN FOR ENQUIRY to amend the return or function CREATE RETURN CHARGE FOR ENQUIRY for 2002-03 to make the following entries

 

 

Field Current Amended
     
Income tax due after reliefs £10000 £15000.00

 

 

 

The effect of amending the Income tax due after reliefs figure to £15000 is to increase the payments on account for 2003-04 to the correct amount, that is, £7500 each.

The position on the SA record for 2002-03 is now as follows

 

  • 1st payment on account for 2002-03 £4000 (of which £2000 paid on 31/03/2003 and £2000 informally heldover)
  • 2nd payment on account for 2002-03 £4000 (informally heldover)
  • Balancing charge for 2002-03 £2000 (informally heldover)

Use function CREATE INFORMAL DISCHARGE for 2002-03 to discharge the unpaid debits in 2002-03 which will be included in the contract settlement. In this case they are the payments on account / balancing charge for 2002-03 included in the contract settlement of £13000.

Use of function CREATE INFORMAL DISCHARGE automatically cancels the informal standovers previously made for these amounts, and prevents interest charges being raised on the charges which are discharged.