PAYE Error Corrections

Mistakes happen, but what should you do if you make a mistake while calculating an employee’s pay or deduction on an RTI submission? How can you make PAYE Error Corrections and get things back on track without upsetting anyone?

Incorrect deductions

If you fail to deduct the correct amount of PAYE or NI from a payment made to an employee, the action that you need to take depends on the nature of the mistake and when it was discovered.

Too Much

If you’ve deducted too much PAYE or NI from an employee’s pay, you can refund the excess the next time they’re paid.

Not enough PAYE. However, if you have not deducted enough, you will need to pay the shortfall over to HMRC as soon as it’s discovered (or by the due date if the error is discovered promptly). For PAYE purposes, you will normally be able to recover the underpaid tax from any later earnings paid to the employee in the same tax year.

Advice. You can request HMRC to make a demand to recover the underpaid tax from the employee if you don’t discover the mistake until after the end of the tax year, providing it was done in good faith, and you took reasonable efforts to set things right.

Not enough NI. If you’ve not deducted enough NI, you can recover this from later payments made to the employee in the same and following tax years. However, the amount that can be recovered from anyone payment cannot exceed the normal primary (employee) Class 1 NI due on that payment.

Underpayments

If you made a mistake with the amount that you paid an employee by not paying them enough, this is easily corrected by making an additional payment through the payroll for the shortfall.

Overpayments 

If you are not able to use your payroll software to submit an EYU, you may be able to use HMRC’s Basic PAYE Tools instead.

You may unintentionally make an overpayment of salary or a pension contribution, for example, if the employee’s pay or hours was recorded incorrectly, resulting in them being paid for work that they did not do. Suppose the mistake is discovered in the same tax year, and the employee continues to receive earnings in that tax year. In that case, the overpayment can be recovered in a later pay period by reducing their post-tax pay in that period, or you can ask the employee to repay the overpayment to you. The PAYE paid to HMRC on the overpayment can be set against the PAYE due in the next pay period. In terms of the full payment submission (FPS), the position can be rectified in the next regular FPS by double-checking the total payments and net tax to date.

Wrong payment date

The payment date used for the FPS should be that on which the payment was made to the employee. If you used the wrong date, you could correct this by sending an additional FPS with the correct date. You should enter “H – Correction to an earlier submission” in the late reporting reason field. If the corrected FPS is sent by the 19th of the tax month after you sent your original FPS, HMRC will apply the correction to the right tax month.

TIP: You’ll need to realign your payroll if the wrong date was in a different tax month. Instructions on how to achieve this may be found in the next section.

Wrong start or leave date

If you get the start or leaving date for an employee wrong, you simply need to update your payroll records to the correct date. Do not be tempted to send an additional FPS as this may create a duplicate record for the employee.

Wrong personal information

If you have made a mistake in entering the employee’s personal information, correct it in your next FPS.

Advice. Do not update more than one personal details field, i.e. name, date of birth or gender in the same FPS, as this may result in your payroll records being duplicated.

Wrong NI category letter

If you’ve used the wrong category letter or the category letter changes in the tax year, you will need to report the changes to HMRC in the FPS. See 

Follow up for instructions on how to do this. If the mistake occurred in a previous year, an earlier year update (EYU) must be sent to fix it.

Mistakes discovered in the tax year

Under RTI, you must send an FPS to HMRC at or before the time in which you make a payment to an employee. Suppose you make a mistake with the amount paid to an employee or deducted from a payment, as well as rectifying the mistake with the employee. In that case, you also need to correct the information submitted to HMRC.

If you discover the error before making your next regular FPS, you can correct it by updating the year-to-date figures in the next regular submission. Alternatively, you can send an additional FPS before your next FPS specifically to correct the error. You should:

• update “this pay period” figures with the difference between what you originally reported and the correct figure
• correct the year-to-date figures
• use the same payment date as on the original FPS on which the incorrect figures were reported; and
• in the late reporting field, select “H – Correction to earlier submission”.

Advice: Don’t forget to amend the year-to-date figures when making a correction.

Mistakes discovered after the tax year.

If you discover that you’ve made a mistake in an earlier tax year, for example, if you made a mistake in an FPS or you failed to submit an FPS, the action that you take will depend on how quickly you discover the error.

Quickly discovered. Suppose the mistake comes to light quickly and you are aware of it within two weeks of the end of the tax year, i.e. on or before 19 April after the end of the tax year. In that case, you can correct it by submitting an additional FPS with amended year-to-date figures as at 5 April at the end of the tax year.

Not so quickly discovered. However, if the mistake does not come to light until 20 April or later, you cannot make an FPS correct the mistake. Instead, you must submit an EYU. For example, if the mistake relates to NI contributions, submit an EYU to show the difference between the amount of NI which you originally deducted and that which you should have deducted.

If you deducted or reported too much NI, you will need to set the NI refund indicator to “yes” if you deducted the right amount of NI from your employee but reported it to HMRC incorrectly (even though no actual refund is due), or if you deducted too much NI from your employee but refunded the amount over-deducted.

By contrast, the refund indicator should be set to “no” only if you owe an employee a refund which you have not paid to them, for example, because they have left your employment.

If you have not deducted enough NI from your employees, you must pay the shortfall to HMRC as soon as possible. To recover the NI contribution underpayment from the employee, you have until the end of the tax year after the one in which the error occurred.

Tax. If the error relates to tax, the correct total payments and net tax to date for the tax year in question should be reported to HMRC on an EYU. You have six years from the end of the tax year to correct mistakes to submit an EYU.

Advice. If you cannot use your payroll software to submit an EYU, you may be able to use HMRC’s Basic PAYE Tools instead.