SAM31055 | Examples of balancing charge credit cases

From HM Revenue & Customs · Self Assessment Manual

Examples 1 and 2 below show the scenario if function CREATE RETURN CHARGE is used on or after 28 January 2000. For examples showing the scenario before that date see $(276) Examples 1A/2A$.

Example 1: Interest charge created on first payment on account

The facts of the case are as follows

Original payments on account for 2002-03 of £500 each
SA return for 2002-03 received shows income tax liability of £800. As liability is less than payments on account the computer reduces them to £400 each
Only the reduced first payment on account of £400 is paid
S9A enquiry results in no amendment to returned liability for 2002-03
After closing the enquiry an undisclosed source of untaxed interest comes to light in January 2004. Discovery assessment made on 10/02/2004 showing additional tax of £1000
Note: This revises the liability for 2002-03 to £1800

Action on making discovery assessment

1. Function CREATE REVENUE ASSESSMENT used to enter a charge on the taxpayer’s SA record equal to the additional tax of £1000. The following entries are made in the function

Field	Entry	Notes
Year	03	Not Applicable
Total	1000	Not Applicable
First POA	100	Assessment charge for £100 set up on SA record which is due 30 days from date of using the function. But relevant date for interest remains 31/01/2003. The charge will be described as Assessment for Tax Year 2002-03 on the taxpayer’s statement
Second POA	100	Assessment charge for £100 set up on SA record which is due 30 days from date of using the function. But relevant date for interest remains 31/07/2003. The charge will be described as Assessment for Tax Year 2002-03 on the taxpayer’s statement
Balance	800	Assessment charge for £800 set up on SA record which is due 30 days from date of using the function. But relevant date for interest remains 31/01/2004. The charge will be described as Assessment for Tax Year 2002-03 on the taxpayer’s statement

Note: On using the function £200 of the additional liability from the Revenue Assessment for 2002-03 is split equally between the first and second payments on account. The £200 being the difference between the original payments on account totalling £1000 and the reduced payments on account totalling £800 resulting from the capturing the SA return for 2002-03

2. Function CREATE RETURN CHARGE used for 2002-03 to make the following entries

Field	Current	Amended
Income tax due after reliefs	£800	£1800.00
Overpayments for earlier years	£0.00	£1000.00

The effect of increasing the Income tax due after reliefs figure by £1000 to £1800 is to increase the payments on account for 2003-04 to £900 each. In addition the entry has the following result on the 2002-03 liability

Increases the first and second payments on account by £100 each, that is, reinstate the original payments on account for 2002-03
Creates a balancing charge of £800

The effect entering £1000 in the Overpayments for earlier years field is to reduce the balancing charge for 2002-03 of £800 to nil and create a balancing charge credit of £200 which is allocated against the payments on account for 2002-03.

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

1st payment on account for 2002-03 of £500 (of which £400 is paid and £100 covered by the balancing charge credit)
2nd payment on account for 2002-03 of £500 (of which £400 is unpaid and £100 covered by the balancing charge credit)
Revenue Assessment for 2002-03 of £1000

As the first payment on account is paid in full the computer will create an interest charge on the first payment on account for 2002-03 (charging interest from 31/01/2003 to 31/01/2004 on the £100 increase which is shown as paid by a balancing charge credit).

Interest charges are referred to the Interest Review Unit for remission.

The interest charge is referred to the Interest Review Unit for remission.

An interest charge is not created on the second payment on account for 2002-03 as £400 is still unpaid. When the £400 is paid the computer will create an interest charge based on interest from 31/07/2003 (statutory due date of the second payment on account) to

The date on which the £400 was paid (calculating interest on the £400)
31/01/2004 (the Effective Date of Payment of the balancing charge credit) on the £100 increase

To prevent interest being included in the interest charge on the second payment on account the balancing charge credit of £100 is transferred to OAS. The transfer is made immediately after the credit was created using function CREATE RETURN CHARGE. OAS is requested to change the Effective Date of Payment to 31/07/2003 before transferring the credit back onto the SA record.

Example 2: Interest charges created on both payments on account

The facts of the case are the same as example 1 except both of the payments on account for 2002-03 of £400 each are paid

Amended entries made on 10/02/2004 in function CREATE RETURN CHARGE are the same as in example 1. Payments on account for 2003-04 are therefore increased to £900 each and there is an increase of £100 to both payments on account for 2002-03. The position on the SA record for 2002-03 is now as follows

1st payment on account for 2002-03 of £500 (of which £400 is paid and £100 covered by the balancing charge credit)
2nd payment on account for 2002-03 of £500 (of which £400 is paid and £100 covered by the balancing charge credit)
Revenue Assessment for 2002-03 of £1000

As the payments on account have been cleared in full by payment and balancing charge credit the computer sets up interest charges. The interest charge on the first payment on account is based on the £100 increase (calculated from 31/01/2003 to 31/01/2004). Likewise an interest charge arises on the second payment on account (calculated from 31/07/2003 to 31/01/2004).

Interest charges are referred to the Interest Review Unit for remission.

Note: If both of the original payments on account of £400 each were unpaid the balancing charge credits of £100 each should be transferred to OAS with a request to transfer them back after amending the Effective Dates of Payment to

31/01/2003 on one of the balancing charge credits of £100
31/07/2003 on the other balancing charge credit of £100

This action ensures an interest charge created on the first payment on account following late payment of the original £400 will not include any interest charged on the £100 increase (and, likewise, on the second payment on account).