The simple way to correct a mistake with an employee’s pay or deduction is to update the year-to-date figures in your next regular FPS.
Alternatively, you can fix it by sending HMRC an additional FPS before the next one is due. In this case, you would need to:
- Update the figures in the ‘this pay period’.
- Correct the year-to-date figures.
- Insert the same payment date as in the original FPS.
- Insert the same pay frequency as in the original FPS.
- Select ‘H – Correction to earlier submission’ in the field titled ‘Late reporting reason’.
What if you need to correct a pension death benefit or a flexibility payment (e.g. as a pension administrator)? In this case, you would need to:
- Choose the appropriate indicator titled ‘pension death benefit payment’ or ‘pension flexibility payment’.
- Update the difference between the original report and the correct figures in the appropriate field(s) marked ‘pensions drawdown taxable payment’ or ‘pensions drawdown non-taxable payment’.
What if You Underpaid an Employee?
As an employer, you must pay your employee the correct amount that you underpaid them. Furthermore, you would need to send an additional FPS to HMRC (no later than the day of the payment) showing the:
- Difference between the original report and corrected amount inserted in the field ‘In this pay period’.
- Updated year-to-date figures.
- ‘H – Correction to earlier submission’ in the field marked ‘Late reporting reason’.
Did You Deduct Too Little National Insurance?
You must pay any underpayment to HMRC without delay. You can then make any necessary deductions from your employee’s pay to recover the amount.
However, you must not recover more than the amount of National Insurance that an employee owes in any given month (meaning they pay no more than double a normal contribution).
You can carry over the difference to later months. But, the deductions must be in the same tax year as the error or the year that follows it.
Correcting Employee National Insurance Deductions
Follow these steps if you made a mistake with your employee’s National Insurance deductions in the current tax year:
- Either repay your employee or deduct the appropriate balance from their pay.
- Update the year-to-date figures to match the corrected amount in (either):
- Your next regular FPS.
- An additional FPS.
- You must not recover an amount more than the employee’s National Insurance contribution due for that particular month if you deducted too little.
An Example:
The deduction you made in January was £100 too little. Your payroll software calculates a National Insurance deduction of £80 for the following month (e.g. February).
As a result, you can recover an amount up to £80 towards the underpayment for that month (a total deduction of £160). In this example, you would need to recover the remaining amount of £20 in a different month.
Follow these steps if you made a mistake with your employee’s National Insurance deductions in a previous tax year:
- Send an Earlier Year Update (EYU) to HM Revenue and Customs (HMRC) that shows the difference between:
- The original deduction of National Insurance.
- The correct amount that should have been deducted.
In some cases, the difference between these two figures can be a negative amount (e.g. you deducted – or you reported – too much National Insurance). If so, you would also need to set the ‘NIC refund indicator’ to (either):
- ‘Yes’ (if you refunded the employee or there is no refund due).
- ‘No’ (if you still owe a refund to your employee). A typical reason for this would be when they no longer work for you.
Often, you can use a Full Payment Submission (FPS) instead, providing you are (both):
- Correcting a mistake from the previous tax year.
- Able to pay any National Insurance refunds that you owe.
Important: Not all payroll software tools allow you to submit an FPS. But, send it along with the correct year-to-date National Insurance if it allows you to do so.
Correcting Employee Student Loan Repayments
Follow these steps if you made a mistake with your employee’s student loan repayments in the current tax year:
- Either repay your employee or deduct the appropriate balance from their pay.
- Update the year-to-date figures to match the corrected amount in (either):
- Your next regular FPS.
- An additional FPS.
- You must not recover an amount more than the employee’s loan repayment due for that particular month if you deducted too little.
An Example:
The deduction you made in June was £50 short. Your payroll software calculates a student loan deduction of £30 for the following month (e.g. July).
As a result, you can recover an amount up to £30 towards the underpayment for that month (a total deduction of £60). In this example, you would need to recover the remaining amount of £20 in a different month.
Follow these steps if you made a mistake with your employee’s student loan repayments in a previous tax year:
- Having deducted too much you would need to repay the employee, and then send:
- An FPS showing the corrected ‘Student loan repayment year to date’ figure as of the 5th of April for the previous tax year (if you noticed the mistake no later than the 19th of April).
- An Earlier Year Update (EYU) showing the difference between the original deduction and the corrected amount (if you spotted the error after the 19th of April).
There is no need to do anything at all if you deducted too little. If it happens, the employee can check how it affects their situation by contacting the Student Loans Company.
Note: You may be able to apply for financial help for an employee tax refund if you find yourself unable to fund it yourself.