Payroll mistakes may seem minor, but incorrect information submitted to HM Revenue & Customs can affect employees’ take-home pay and leave businesses with inaccurate PAYE records.
HMRC guidance continues to warn employers about errors in Real Time Information submissions. Problems can arise when payroll IDs are changed incorrectly, previous IDs are reused, starter details are entered for existing employees, or year-to-date figures are reported inaccurately. HMRC sets out exactly what payroll information must be reported, including how payroll IDs should be assigned and kept unique.
These mistakes may create duplicate employment records, incorrect tax codes and PAYE balances that do not match the employer’s payroll reports.
What Is the Real News?
This is not a new tax rule or evidence of a confirmed nationwide increase in payroll mistakes. The real concern is the impact of inaccurate payroll information already being reported through PAYE.
Employers usually submit employee pay and deduction details through a Full Payment Submission on or before each payday. HMRC mainly uses this information to update employee records and calculate how much the employer owes. Reliable online accounting services can help ensure these submissions are accurate before they reach HMRC.
Moreover, when the information is mostly incomplete, duplicated, or incorrect, an employee might pay too much or very little tax. The employer may also see an incorrect PAYE liability on its HMRC account.
Correcting the problem can take time, particularly where duplicate records have been created, or HMRC needs to investigate the employer’s account.
Who Could Be Affected?
The issue may affect:
- UK employers operating a PAYE scheme
- Payroll teams and finance departments
- Accountants and payroll agents
- Businesses changing payroll software
- Employers changing or reusing payroll IDs
- Businesses processing starters, leavers or returning employees
- Employees whose tax codes or deductions appear incorrect
Small businesses and, as businesses expand, e-commerce operations may need extra pressure where they don’t have an in-house payroll specialist to identify and rectify payroll reporting errors promptly. In such situations, a Virtual Finance Director may be able to offer supervision that is typically missing in a smaller-sized team.
What Happens If Payroll Errors Are Ignored?
Employees may have too much Income Tax deducted and receive less take-home pay than expected. Where too little tax is collected, HMRC may later adjust the employee’s tax code or issue a bill for the unpaid amount.
Incorrect payroll records may also affect National Insurance contributions, student loan deductions and income information used for certain benefits.
Employers may face incorrect PAYE charges, employee complaints, payment reminders and additional time spent investigating differences between payroll reports and HMRC records.
Payroll mistakes do not always resolve automatically. Employers remain responsible for checking their submissions, maintaining accurate records and correcting errors where necessary. HMRC’s own guidance on how to fix problems with running payroll confirms that the employer must actively correct unresolved discrepancies.
The general rule is that payroll records should be retained by businesses for three years after the tax year to which they apply. If sufficient records are not kept, HMRC could fine up to £3,000.
HMRC’s service for unresolved employer PAYE bill problems states that it may take up to 40 working days to contact the employer or agent with information to help investigate and correct the discrepancy.
What Should Employers Do Now?
Employers should:
- Check employee names, dates of birth and National Insurance numbers
- Review starter and leaving information
- Make sure each employee has a unique payroll ID
- Avoid reusing an old payroll ID incorrectly
- Apply HMRC tax-code notices before the next relevant payday
- Compare FPS figures with internal payroll reports
- Review the PAYE balance shown on the HMRC account
- Correct FPS or EPS errors as soon as they are identified
- Keep evidence of the original mistake and correction
- Seek professional support where the issue remains unresolved
Employees who believe their tax code is wrong should compare the code shown on their payslip with the information in their Personal Tax Account. They should also speak to their employer where their pay or employment information appears incorrect. Our free tax guides explain many of these payroll and PAYE issues in more detail.
Why Trust Lanop to Help?
Payroll corrections often require several records to be reviewed together, including FPS submissions, employee details, tax-code notices and the employer’s HMRC balance.
Lanop Business and Tax Advisors can help businesses review PAYE records, identify duplicate or inconsistent information, correct payroll submissions and communicate with HMRC where further investigation is needed.
By dealing with payroll errors early, Lanop can help employers protect employee pay, maintain reliable PAYE records and reduce the risk of the same problem happening again.
