PAYE96325 - Reconcile individual: simple assessment: including carried forward underpayments in a simple assessment year

As part of multiple year reconciliation processing where a year is Simple Assessment it can include a previously carried forward underpayment. If the tax paid in the Simple Assessment year is more than the carried forward underpayment amount the tax paid, is used to clear the carried forward underpayment.

Simple Assessment year includes a carried forward underpayment from an earlier year

For the first reconciliation of a year results in a Simple Assessment the system will check

  • 1.  If there are any carried forward coded out underpayments in the Simple Assessment year, (displayed in the Reconciliation Details as ‘Tax underpaid at start of year’) and compare this with any tax paid. If the tax paid is more than the carried forward coded out amount, the system will include the coded out amount against the tax paid
  • 2.  The carried forward underpayment amount matches the amount coded into the Simple Assessment year

Example: Simple Assessment year includes a carried forward underpayment

The system checks if the carried forward underpayment is less than or equal to the tax paid in the year. In the example below the tax paid = £1000. This is greater than the carried forward underpayment of £500.

The carried forward amount is included in the reconciliation year because the tax paid is used against the carried forward underpayment.

Initial Reconciliation triggered (CY-1)

Tax due in year £1750

Tax paid in year £1000

Tax Underpaid at start of year £500 (carried forward from CY-3’starting balance’)

Reconciled Underpaid £1250 (carried forward £500 + £750)

When any carried forward underpayment(s) is/are included in the Simple Assessment charge the original coded out year(s) will update the NPS Accounting /Financial Summary to ‘Carried forward’ and ‘Paid ETMP’.

Simple Assessment returns a carried forward underpayment to the source year

The Simple Assessment year will not include a carried forward underpayment if

  • the carried forward value is more than the tax paid in the year
    and
  • the undepayment in the last coding calculation for that year does not match the carried forward underpayment amount 

Where the underpayment can’t be included the system will remove the carried forward amount and return these to the original coded out year. This will automatically trigger a multiple year reconciliation to include the year the underpayment was coded out from, to the year reconciliation was triggered.

Example: Simple Assessment year returns a carried forward underpayment to the original underpaid year

Initial reconciliation triggered (CY-1)

Tax due in year £1750

Tax paid in year £500

Tax underpaid at start of year £1000 (carried forward from CY-3’starting balance’)

Reconciled underpaid £1750 - £500 = £1250 Simple Assessment charge

£1000 is returned to the original underpaid year and either

  • a.  A new Simple Assessment charge is created for CY-3, or
  • b.  The underpayment is coded in CY+1

NPS will follow the multiple year reconciliation process to check the cumulative result by

  • Where possible identifying the start year where there is no existing carried forward values
  • The carried forward amount is no longer included in the year being reconciled 
  • The original year where the underpayment was coded out from will be underpaid and the underpayment will be outstanding. The coded out status on the Accounting/ Financial details is cancelled
  • A multiple year reconciliation will automatically be triggered

Where there are further coded out carried forward results in the original underpaid source year the system will review earlier years to identify a nil starting balance.

Where a carried forward coded out underpayment is returned to the original underpaid year the system will review the following changes to the source year which may prevent the year from being included in a multiple year reconciliation:

  • Where a carried forward underpayment can’t be included and returns a carried forward underpayment back to a tax year CY-5 or CY-6.
  • Where carried forward coded out underpayment can’t be included and returns underpayment back to a year now identified as Self-Assessment a WI will be raised (WI158 action guide tax36198). NPS Accounting /Financial Summary details on the coded out year will be updated to 'Cancelled - Transferred to CESA'.
  • Where a carried forward underpayment can’t be included in a Simple Assessment year and returns the carried forward amount back to a year which has become unripe and cannot be reconciled, the multiple year reconciliation will not take place and a WI will be raised (WI315 action guide tax36134).
  • Where a carried forward underpayment can’t be included in a Simple Assessment year and returns the carried forward amount to a year which has become Simple Assessment and a Query or Appeal flag is set, the multiple year reconciliation will not take place. Where the Query or Appeal flag has been set, an error message will be displayed to prevent online reconciliations  

Re- reconciliations where a carried forward underpayment is included in a Simple Assessment year

A Simple Assessment year will only include a carried forward underpayment the first time a year is reconciled as Simple Assessment. Where there are changes to the Simple Assessment year or the source year the system will review the result as follows:

  • Where a re-reconciliation result for a Simple Assessment year includes a carried forward underpayment and the Simple Assessment charge changes, but the carried forward underpayment has not changed, the carried forward underpayment will remain in the Simple Assessment charge.
  • Where a re-reconciliation result for a simple Assessment year reduces the amount of tax paid, if the new result changes the tax paid so that it is less than the carried forward underpayment, the carried forward amount will be cancelled from the simple assessment year and returned to the original source year.
  • If the original underpaid source year is re-reconciled and the result changes the amount the original carried forward amount in the Simple Assessment year, the carried forward underpayment will be returned to the original source year.
  • A new Simple Assessment charge will be raised for the original underpaid year, and
  • The existing Simple Assessment charge will be re-calculated in isolation with no carried forward amount.

Where a Simple Assessment year originally included a carried forward underpayment and this amount is removed from a Simple Assessment year following a re-reconciliation:

  • The Financial details screen will cancel the ‘Paid ETMP’ status in the coded out source year. NPS will check the cumulative result of the years to include the source year. If the result produces an underpayment which cannot be coded, the original underpaid year will become a Simple Assessment year with a receipt status of ‘Sent to ETMP’.
  • The existing Simple Assessment year will be reviewed as this no longer includes the carried forward underpayment amount. An update will be sent to ETMP to amend or cancel the charge and a new PA302 will be issued to the customer for the new charge.

Determining the start balance

Where a carried forward underpayment is included, the value of the carried forward underpayment will be used as a start balance when performing a single or multiple year reconciliation.

Where there are further carried forward amounts the system will look at the previous year(s). These are identified by checking if the total coded out cumulative underpayments equal the Tax underpaid at the start of the year.

Where the system has checked all years back to CY-4 and a carried forward underpayment does not equal the tax underpaid at the start of year a zero value is used as a starting balance.