This guide explains what errors you may find and what actions you should take if you discover that you deducted the wrong amount of PAYE tax from an employee in a previous tax year.
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The following list describes some of the more general errors which may be made by employers or pension payers in deduction of PAYE:
If you discover an error in the deduction of PAYE tax, you should make arrangements to make payment to HMRC. You should contact HMRC's Employer Helpline for advice on how to make this additional payment if you are unsure.
If you consider you have taken reasonable care to operate PAYE, read
the section in this guide 'Errors despite reasonable care to operate
PAYE and made in good faith'.
Your employees may also bring to your attention a potential error. You should check your payroll records for any mistakes in calculating, reporting and deducting PAYE tax and let your employee have an explanation of what you have found. Again you should make arrangements to pay the tax or contact HMRC.
Find contact details for HMRC's Employer Helpline
If HMRC discover an error they may write to you with details of the under deduction and request you make payment of the PAYE tax due.
If HMRC discovers an over deduction they will not routinely contact you about this, but will contact the employee direct to arrange repayment of any PAYE tax they have overpaid.
Whether you identify the error or HMRC do, if you believe that you took reasonable care to operate PAYE and that the error was made in good faith then you can ask HMRC to collect the PAYE tax from your employee. You should do this by giving a full explanation in writing as to how the error occurred.
A 'failure to take reasonable care', means failing to follow set instructions to deduct PAYE tax or by failing to use tax code notices issued to you. An error 'In good faith' means that you did not know that you were making incorrect deductions of tax. If you were aware that you were not deducting PAYE tax correctly from employees pay and did nothing about it then that is not an error in good faith.
HMRC will consider your explanation and decide whether it demonstrates that the mistake was made despite having taken reasonable care to operate the PAYE and was made in good faith.
If HMRC do not accept your explanation about the error then they will ask you to pay the under deduction of PAYE tax. However, the decision will carry a right of appeal if you disagree. The appeal procedure will be detailed in the notice sent to you.
If HMRC accept your explanation then they may direct that the PAYE tax is paid by the employee. That decision also carries a right of appeal.
