So, you paid an employee the wrong amount, or you made incorrect National Insurance deductions, what should you do?
This guide can help you identify and fix some of the common problems associated with payroll before contacting the HMRC helpline.
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:
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:
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:
Follow these steps if you made a mistake with your employee's National Insurance deductions in the current tax year:
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:
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):
Often, you can use a Full Payment Submission (FPS) instead, providing you are (both):
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.
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.
Follow these steps if you made a mistake with your employee's student loan repayments in the current tax year:
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:
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.
How to Correct an Employee's Pay or National Insurance Deductions