SAM121161 - Returns: individuals returns: arrears of pension and pay (Action Guide)
Where an SA return indicates that a payment of arrears of personal pension and pay has been received, and excludes the income that relates to earlier years, an overpayment of tax will arise for that year. Where this overpayment should be set against any increase in the tax charged for earlier years, follow steps 1 - 10 below.
For details of how to access the SA functions, select ‘Index Of Functions’ on the left of the screen.
If the taxpayer is in SA only in the year when arrears are received, and asks for the arrears to be spread back
1. Recalculate liability for those years in accordance with the guidance regarding recalculation of liability for non-SA cases within the Employment Income Manual at EIM42290 and EIM75020.
2. Write to the taxpayer attaching draft calculations for the years in which the underpayment(s) arises. Do not attempt to trigger manual reconciliation in the PAYE Service for the non-SA years unless it is necessary to issue an informal tax calculation because you need to amend a previous informal calculation or because the taxpayer has asked for a more detailed calculation
3. Record the calculated PAYE underpayment at the end of the last non-SA year on the SA record using function CREATE SUNDRY CHARGE. The charge type to be used is ‘Net Underpayment’. For more information, see PAYE91090
4. Set the relevant due date for payment as equal to the relevant due date of the year in which the payment of arrears was made. (For example, if payment of arrears was made during 2009-10 then the relevant due date of the net underpayment should be set to 31 January 2011)
Note: It is important that you record the PAYE underpayment / amendments on the SA system for the earlier years before you amend the return for the year in which payment of arrears was made. This will ensure that the overpayment for the latest year is set against the underpayment for the earlier years
If the taxpayer is in SA in one or more earlier years, and asks that the arrears be spread back
For years for which the taxpayer made SA returns
5. Amend, treating as a taxpayer amendment, returns for any years that are still in date for amendment
6. Make discovery assessments for any years that are out of time for amendment
Note: For information regarding tax charge, due dates, Section 86 interest, transfer of overpayments, effective date of payment and so on, see section ‘Assessments Within SA’, subject ‘Pensions etc Taxable On The Amount Accruing In The Year (‘accruals basis’)’ (SAM20030)
For years for which the taxpayer did not make SA returns
7. Recalculate liability for those years in accordance with the guidance regarding recalculation of liability for non-SA cases within the Employment Income Manual at EIM42290 and EIM75020.
8. Write to the taxpayer attaching draft calculations for the years in which the underpayment(s) arises. Do not attempt to trigger manual reconciliation in the PAYE Service for the non-SA years unless it is necessary to issue an informal tax calculation because you need to amend a previous informal calculation or because the taxpayer has asked for a more detailed calculation
9. Record the calculated PAYE underpayment at the end of the last non-SA year on the SA record using function CREATE SUNDRY CHARGE. The charge type to be used is ‘Net Underpayment’
10. Set the relevant due date for payment as equal to the relevant due date of the year in which the payment of arrears was made. (For example, if payment of arrears was made during 2009-10 then the relevant due date of the net underpayment should be set to 31 January 2011)
Note: It is important that you record the PAYE
underpayment / amendments on the SA system for the earlier years before you
amend the return for the year in which payment of arrears was made. This will ensure that the overpayment for the latest
year is set against the underpayment for the earlier years