SAM31054 - Compliance: enquiry work: discovery: update payments on account for next year (Action Guide)

This Action Guide tells you what steps to take to

  • Find out if you need to update an individual’s, pension scheme’s or trust’s payments on account for the year following that in which a discovery assessment is made
  • Make the updates necessary

When you have made a discovery assessment for 1995-96 or a later year, follow steps 1 - 16 below. The guide is presented as follows

To decide if this Action Guide is used to update the payments on account for the year following that in which a discovery assessment is made - Steps 1 - 5
On making a discovery assessment where payments on account (with ‘Latest Revenue Amounts’ greater than zero) exist for the year following the year of discovery - Steps 6 - 8
On making a discovery assessment where payments on account do not exist (or have ‘Latest Revenue Amounts’ equal to zero) for the year following the year of discovery - Steps 9 - 12
Collection heldover on discovery assessment - Step 13
Appeal determined on discovery assessment - Steps 14 - 16

For details of how to access any of the SA functions, select ‘Index of Functions’ on the left of the screen.

To decide if this Action Guide is used to update the payments on account for the year following that in which a discovery assessment is made

If this is not the only or final year for which a discovery assessment has been made

1. Take no further action from this Action Guide. Follow the guidance in section ‘Assessments within SA’ (SAM20000 onwards) in business area ‘Assessments’. If appropriate, the payments on account will be included in the next year’s discovery assessment

If the discovery assessment is made for a return year with or without a determination and a return charge has not been created because either

  • The return was not received before the time limit for making the self assessment, regardless of whether a determination exists for that year, or
  • Exceptionally, the return has still not been received, even though it is still within the time limit

2. Take no further action from this Action Guide. Although payments on account are due for the year following that of the discovery assessment, it is not possible to create them. Function CREATE RETURN CHARGE must not be used in these circumstances

In all other circumstances

3. Use functions VIEW STATEMENT and MAINTAIN PAYMENTS ON ACCOUNT to find out

  • Whether payments on account for the year following the year of discovery exist, and
  • The ‘Latest Revenue Amounts’ for the payments on account

If payments on account exist and the ‘Latest Revenue Amounts’ are greater than zero

4. Follow steps 6 - 8 below to update them

If the payments on account do not exist or the ‘Latest Revenue Amounts’ are equal to zero

5. Follow steps 9 to 12 below to create / update them

On making a discovery assessment where payments on account (with ‘Latest Revenue Amounts’ greater than zero) exist for the year following the year of discovery

6. Use function CREATE RETURN CHARGE for the year of discovery to add the total of the additional income tax and Class 4 NIC charged in the discovery assessment

  • To the existing entry in the Income tax due after reliefs field. For example, £800 returned for the year already appears in the field. £3000 additional income tax and Class 4 NIC charged in a discovery assessment, so the entry needs to be amended to ‘3800.00’
  • In the Overpayments for earlier years field (or to any existing entry in the field). Using the above example, say, there is existing entry of £500 in the field so the entry needs to be amended to ‘3500.00’. If there was not already an amount in the field the entry required would be ‘3000’

Note: On sending the screen the entries have no effect on the returned liability due for the year of discovery. But, the computer uses the revised Income tax due after reliefs figure to set up or amend existing payments on account for the next year

Example 1 (Word 50KB) shows what updates need to be made in function CREATE RETURN CHARGE

7. After using function CREATE RETURN CHARGE use function VIEW STATEMENT to see if there are increases to payments on account for the year of discovery which are covered by a balancing charge credit. (See examples of balancing charge credit cases (Word 58KB)). If an interest charge has been created in respect of the increase

  • Correct this by transferring the balancing charge credit to OAS
  • At the top of your disposal instructions to Banking Operations write ‘IMMEDIATE ACTION’ and mention the following points
  • Effective Date of Payment of the balancing charge credit. This should be amended to 31 January within the year of discovery for the amount of the credit to be transferred to the first payment on account and 31 July after the year of discovery for a credit to be transferred to the second payment on account. For example, if the year of discovery is 2005-06 and a credit is transferred to the first payment on account for that year, the Effective Date of Payment of the credit should be amended to 31/01/2006
  • Transfer of the credit(s) from OAS back to the SA record must be made on receipt of the disposal instructions

8. Write to the taxpayer and agent to explain

  • Payments on account have been updated for the next year in line with the liability on the discovery assessment for the previous year. Stress that the statutory due dates of the payments on account remain the same
  • A statement will be issued shortly showing the updated payments on account for next year. In most cases the statutory due dates of the first and second payments on account will have long since passed. The taxpayer should in advance of receipt of the statement be invited to send in payment. This will stop interest accruing on the payments on account

If you have transferred a balancing charge credit to OAS for change of Effective Date of Payment advise that the increase on the original payment on account can be ignored as a credit will shortly be set against

On making a discovery assessment where payments on account do not exist (or have ‘Latest Revenue Amounts’ equal to zero) for the year following the year of discovery

9. Use function CREATE RETURN CHARGE for the year of discovery

  • For record purposes take a printout of the Create Return Charge screen for the year of discovery before making the following changes
  • Add together the amounts in the following fields
  • Income tax due after reliefs
  • Recoverable tax on charges
  • Class 4 National Insurance
  • Unpaid tax for earlier years in PAYE
  • Deduct from this total the amounts in the following fields
  • Tax deducted at source
  • Tax due included in later PAYE code
  • If the result is positive, add this resulting total to any amount that is already in shown in the Underpayments for earlier years field. Example 2 (Word 57KB) shows what updates need to be made in function CREATE RETURN CHARGE
  • If the result is negative, add this resulting total to any amount that is already shown in the Overpayments for earlier years field. Example 3 (Word 57KB) shows what updates need to be made in function CREATE RETURN CHARGE

10. Amend the other entries in function CREATE RETURN CHARGE as follows

  • Replace the existing entry in the Income tax due after reliefs field with the total additional income tax and Class 4 NIC charged in the discovery assessment (note that any Capital Gains tax and Student Loan and/or Postgraduate Loan repayments included in the discovery assessment must not be added here)
  • Add to the current entry in the Overpayments for earlier years field, the total additional income tax and Class 4 NIC charged in the discovery assessment (note that any Capital Gains tax and Student Loan and/or Postgraduate Loan repayments included in the discovery assessment must not be added here)
  • Enter 0 (zero) in the following fields, replacing any existing entry
  • Recoverable tax on charges
  • Class 4 National Insurance
  • Unpaid tax for earlier years in PAYE
  • Tax deducted at source
  • Tax due included in later PAYE code
  • Do not alter any other amounts
  • Select the [OK] button

11. Make a comprehensive note in function MAINTAIN SA NOTES of the action you have taken, and the reason for this action

12. Follow Steps 7 and 8 above

Note: These changes in function CREATE RETURN CHARGE may effect any payments on account which existed for the year of discovery. This is unavoidable. Where payments on account are reduced, any payments which have been recorded against the payments on account will be re-allocated automatically. Where they are increased, ensure steps 7 and 8 above are followed correctly

Collection heldover on discovery assessment

13. If you receive an appeal and postponement application relating to additional tax and Class 4 NIC on a discovery assessment

  • Follow the instructions in section ‘Postponements’ (SAM11000 onwards), and
  • Informally holdover collection of payments on account for the next year to the extent they are based on any postponed amount

Example: 2005-06 discovery assessment made showing additional income tax and Class 4 NIC of £6000. Both payments on account for 2006-07 increased by £3000. On making an appeal against the assessment the taxpayer requests, and we agree, to postpone collection of £4000 on the assessment. On agreeing the postponement, £2000 should also be held over informally on both payments on account for 2006-07

Appeal determined on discovery assessment

14. In all cases use function MAINTAIN STANDOVERS

  • To release payments on account for next year, which were heldover informally when liability on the discovery assessment was postponed, and if no amendment is needed to the discovery assessment
  • To release liability heldover formally on the discovery amendment

15. If the discovery assessment is amended, use function CREATE RETURN CHARGE for the year of the discovery to amend by the amount of the reduction or increase in the liability on the discovery assessment

  • The entry in the Income tax due after reliefs field. For example, £1000 additional income tax and Class 4 NIC originally charged in the discovery assessment and on amendment the total is increased to £1350. So the entry in the field needs to be increased by £350
  • The entry in the Overpayments for earlier years field. Using the above example £350 is also added to the existing entry in the field

Note: On sending the screen the entries have no effect on the overall return charge. But, the computer uses the revised income tax and Class 4 NIC totals to set up or amend payments on account for the next year

If you have used function CREATE RETURN CHARGE following an increase to the liability on the discovery assessment refer to Step 7 above

16. Write to the taxpayer and agent to advise

  • The amount now due on the discovery assessment
  • The revised payments on account for next year
  • A statement will be issued shortly showing the revised amounts due on the discovery assessment and payments on account for next year. In most cases the relevant date for interest on liability on the discovery assessment (and the statutory due dates of the payments on account) will have long since passed. The taxpayer should in advance of receipt of the statement be invited to send in payment to stop accruing interest