How to correct payroll mistakes for an earlier tax year

HMRC is reminding employers to make sure they are up to date with corrections to payroll mistakes related to an earlier tax year

If the wrong pay or deductions were reported for the 2020-21 tax year or any later tax years, employers can correct this by submitting another full payment submission (FPS) with the correct year to date figures.

If the payroll error relates to the 2019-20 tax year, this can be corrected by submitting an earlier year update (EYU) or an FPS with the correct year to date figures if the payroll software allows.

For historic claims relating to earlier tax years dating back to 2017, it is necessary to submit an EYU showing the difference between what was originally reported and the correct figure. This service can only be used to correct reporting made in real time through RTI.

Correct an employee’s National Insurance deductions

If the wrong category letter was used in the 2020-21 tax year or a later tax year, an additional FPS with the correct category letter and correct year to date National Insurance for this category letter, has to be submitted.

To correct a mistake in the 2019-20 tax year, it may be possible to submit an FPS instead of an EYU if the payroll software allows this.

If the mistake was in the 2017 to 2018 or 2018 to 2019 tax years, submit an EYU with negative amounts in all the National Insurance year to date fields in the incorrect category letter to reduce the employee’s National Insurance to zero. Then it is necessary to enter the correct year to date National Insurance amounts under the correct category letter to reinstate the employee’s correct National Insurance contributions.

If the mistake caused an overpayment or underpayment of National Insurance, this also needs to be corrected by amending the category letter.

It is also important to inform HMRC if the difference is negative because too much National Insurance was deducted or reported, and if employees are owed a refund if they have left the business.

The letter will need to include the reference ‘Overpaid NI contributions’; employee’s name, date of birth and National Insurance number; why the NICs were overpaid and for which tax years; the amount overpaid; and the reason why the company did not make refund the employee.

For a single employee amendment send the details to HMRC, National Insurance Contributions and Employer Office, BX9 1AN.

For a claim for more than one employee, send the letter to HMRC, National Insurance Contributions and Employer Office, BX9 1BX.

Correct an employee’s student loan repayments for an earlier tax year

For mistakes related to student loan deductions for an earlier tax year when too little was deducted, it is up to the employee to contact the Student Loans Company to find out how the incorrect payment affects them.

However, if your payroll deducted too much, the employee must be repaid and the error must be reported.

If the mistake was in the 2020-21 tax year, send an FPS with the correct ‘student loan repayment year to date’ figure as of 5 April for the earlier tax year.

If the mistake was in the 2019-20 tax year, it is important to check payroll software to see whether an FPS can be submitted. In this case, this should be sent with the correct ‘student loan repayment year to date’ figure as of 5 April for the earlier tax year. Otherwise send an EYU with the difference between what was originally deducted and the correct amount.

For information on payroll matters, visit BrAInbox today where you can find answers to questions like Can I reclaim money back if I overpay an employee?

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