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PAYE46095 | Employer returns: employer return post capture: tax credit funding discrepancy - up to 2003

From HM Revenue & Customs · PAYE Manual

Note: This subject provides details of how to deal with tax credit funding for tax years up to 2002 to 2003.

This subject is presented as follows

Types of tax credit funding discrepancy

There are only two types of tax credit funding discrepancy, either

  • The P35 funding amount is more than the amount on the Tax Credit Service (TCS) or New Tax Credit system (NTC)
    Or

  • The P35 funding amount is less than the amount on TCS/NTC

How do tax credit funding discrepancies occur?

Tax credit funding discrepancies can arise for a number of reasons

  • Input error by an operator

  • The employer has made an arithmetical error

  • In calculating the funding
    Or

  • Including advances to pay SSP / SMP or tax refunds

  • The employer has shown only the funding used in the year having retained the excess to pay tax credits in the following tax year
    Or

  • If no tax credits to pay in the following year they must show the total funding received (the employer then pays back the full amount of the funding discrepancy subject to all the payments being issued)

  • TCS/NTC may hold a different figure to that input from the P35 where

  • The figure includes funding payments which are still awaiting issue, cancelled or suspended

  • The figure needs to be adjusted as funding is to be reallocated to the following year

Handling tax credit funding discrepancies

You must deal with any tax funding discrepancies immediately.

Any funding discrepancies that arise during the capture of an employer annual return must be dealt with quickly and not stockpiled to deal with at a later date.

You must, however always endeavour to make all post capture checks together. In addition to tax credit funding discrepancies these may include

  • An entry on the ‘CIS Deductions Advisory’ work list
    Or

  • An entry on the ‘Post Capture’ work list
    And / or

  • An overpayment notification in Early Morning Output

Failure to deal with tax funding discrepancies may result in other overpayments or underpayments that arise on the employer record not being worked.

It is important that you review the employer record and use TCS/NTC to

  • Review the funding authorised during the year
    And

  • Identify whether a reallocation would be appropriate

To enable you to resolve a tax credit funding discrepancy you will need the following information

  • The amount of funding reported by the employer on their annual return

  • The amount of tax credit funding captured on to EBS

  • The amount of tax credit funding paid to the employer for that year

  • The amount of tax credits that the employer was asked to pay to their employees

Note: Although you will be responsible for recognising possible reallocations, Banking Operations will make the final decision on whether the reallocation will be appropriate

They will

  • Decide the amount to reallocate
    And

  • Process the reallocation

  • Tax Credit Funding for the year 2002 to 2003 can not be reallocated to 2003 to 2004 and must be declared on the 2002 to 2003 Employer Annual Return

  • Tax Credit Funding for the year 2005 to 2006 can not be reallocated to 2006 to 2007 and must be declared on the 2005 to 2006 Employer Annual Return

When a discrepancy arises for years up to 2002 to 2003 no work item will be produced on a work list. An entry will appear on the monthly list from the Processing Centre headed ‘All other cases referred to Districts’ where the Funding Discrepancy indicator is still held on the employer record.

When a discrepancy arises for years 2003 to 2004 to tax year 2005 to 2006 a work item will be produced on the Post Capture work list.

Follow the Action Guide at PAYE53011.

Contacting Banking Operations PAYE Units

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Recovery of excess tax credit funding

You may in day to day work be contacted by an Employer Compliance Investigation Team (ECIT), who are in the process of collecting excess tax credit funding from an employer.

It is important that you understand

  • What action ECITs may take

  • The action that you must take on receipt of a notification from an ECIT regarding the recovery of excess funding.