Correcting payroll errors - previous year

You must make sure that the figures for pay, tax, National Insurance and the employee details that you report to HM Revenue & Customs (HMRC) on your Full Payment Submissions (FPS) are accurate. But sometimes mistakes can happen. If you find out that you have made an error in a previous tax year, you must correct it.

If you have reported incorrect information in a previous tax year, what you need to do depends on whether the error was originally made when reporting via forms P35 and P14, or on an FPS or Employer Payment Summary (EPS).

This guide will show you what you need to do to correct mistakes made in previous tax years and when you might need to send an Earlier Year Update (EYU).

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Correcting errors made on forms P35 and P14 for tax years prior to reporting in real time

If you discover an error made relating to a tax year when you reported information using forms P35 or P14, you should submit amended forms that show the difference between what was reported and what should have been reported.

If the mistake was on a form P14, you must also send an amended form P35 for that tax year.

Any amended forms you send to HMRC should contain only the amended information - whether this is a positive or negative amount. Do not file a new form containing the revised totals.

For example, if your original P14 for an employee incorrectly shows a PAYE tax deduction of £100.13 instead of the actual figure of £10.13, you should send HMRC another P14 for the employee. But this second form shouldn't record the correct figure of £10.13. Instead it should show the difference between the original amount and the actual figure. So in this example, the amended P14 should show -£90.00.

You can file amended forms P35 and P14 online for up to six years after you filed the original forms.

The software that you used to run your payroll in that year may allow you to do this; otherwise you can use the online forms which are part of HMRC's PAYE Online service. You cannot do this using Basic PAYE Tools.

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Errors in Full Payment Submissions (FPS) submitted in the previous tax year

If you discover, on or before 19 April following the end of the tax year, that you have not submitted an FPS or you have reported incorrect year to date figures, you should submit an additional FPS with corrected year to date figures as at 5 April for the previous tax year. You can find out how to do this by following the link below.

Correcting payroll errors - current year

If you discover the issue on or after 20 April in the following tax year, you should submit an EYU. You can submit an EYU to correct FPS information for up to six years after you filed your original FPS or EPS.

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Earlier Year Update (EYU)

You use an EYU to correct data for 2012-13 and later tax years. You can only use an EYU for the tax years where you operated PAYE in real time.

Most employers will be able to complete and send an EYU using their existing payroll software. If the software doesn't allow you to send an EYU, or you use the Basic PAYE Tools to run your payroll, you can use the Basic PAYE Tools to complete and send an EYU. Further help is available:

If you used forms P35 and P14 in the previous tax year that you need to correct, see the section 'Correcting errors made on forms P35 and P14 for tax years prior to reporting in real time' above.

If you are correcting an error in a previous tax year when you used FPS and EPS, your EYU should only record the difference between what you had originally submitted and what the figure should be.

For example, if you recorded £100 too little pay on an employee's payroll record, the EYU should show '+£100'. You can only amend year to date data on an EYU.

If you need to submit more than one EYU, each submission must only show the amount of the amendment from the last figures submitted.

For example, if you submit a year to date figure of £10,000 for pay on your last FPS for the year, then realise that the figure should have been £12,000, you will submit an EYU to show '+£2,000'. If you then realise that the actual figure should have been £11,500, you must then submit a second EYU which will show '-£500'.

To find out what fields you must complete follow the link below.

Payroll summaries - Earlier Year Update checklist

Correcting National Insurance category errors using an EYU

On an EYU, you can enter up to four National Insurance category letters for one employee.

If there was only one category letter submitted on an FPS for the employee and that category letter doesn't need to be changed when you submit your EYU, you should use the same category letter on the EYU as submitted on the FPS.

If there was only one category letter submitted on an FPS for the employee and that category letter was incorrect and shouldn't have been used at all in the year, when you submit the EYU, you should enter both:

  • the incorrect category letter and negative amounts in all the National Insurance year to date data fields so that the last year to date National Insurance data submitted on the last FPS for the employee are reduced to nil
  • the correct category letter with the correct year to date National Insurance data for that category letter

This will have the effect of recording all the National Insurance contributions (NICs) with the correct category letter.

For example, an FPS for an employee for the last payment made in the 2013-14 tax year showed:

Data field

Amount

National Insurance category letter

A

Employers NICs to date

£535

Employees NICs to date

£456

Earnings at the lower earnings limit to date

£2,320

Earnings between the lower earnings limit and the primary threshold to date

£850

Earnings between the primary threshold and the upper accrual point to date

£3,830

Earnings between the upper accrual point and the upper earnings limit to date

£0

Pay subject to Class 1 NICs this payment

£1,200

Employers NICs this payment

£79

Employees NICs this payment

£68

However, you find out that the category C NICs were due throughout the year. You should send an EYU showing the following for both categories A and C:

Data field

Amount

National Insurance category letter

A

Employers NICs to date

- £535

Employees NICs to date

- £456

Earnings at the lower earnings limit to date

- £2,320

Earnings between the lower earnings limit and the primary threshold to date

- £850

Earnings between the primary threshold and the upper accrual point to date

- £3,830

Earnings between the upper accrual point and the upper earnings limit to date

£0

Data field

Amount

National Insurance category letter

C

Employers NICs to date

£535

Employees NICs to date

£0

Earnings at the lower earnings limit to date

£2,320

Earnings between the lower earnings limit and the primary threshold to date

£850

Earnings between the primary threshold and the upper accrual point to date

£3,830

Earnings between the upper accrual point and the upper earnings limit to date

£0

If there was more than one category letter submitted on an FPS for the employee and all the category letters were correct but the National Insurance data values were incorrect for only one of the category letters, you should adjust the year to date National Insurance data for the incorrect category letter values only.

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Reporting an error on an EPS - previous tax year

If you have reported incorrect information on an EPS in a previous tax year, you must submit another EPS to report the correct total year to date figures for all recovered payments within that tax year. You can submit an EPS for up to six years after you filed your original FPS or EPS.

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Incorrect amounts deducted - previous tax year

In general terms, if you discover an error in the deduction of PAYE tax or NICs, 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.

Your employees may also bring a potential error to your attention. You should check your payroll records for any mistakes in calculating, reporting and deducting PAYE tax and NICs and let your employee have an explanation of what you have found. Again, you should make arrangements to pay the PAYE tax and/or NICs or contact HMRC.

If HMRC discovers an error, they may write to you with details of an under-deduction and request you make payment of the PAYE tax due.

If HMRC discovers an over-deduction of PAYE tax or NICs they will not routinely contact you about this, but will contact the employee direct to arrange repayment of any PAYE tax and or NICs they have overpaid.

HMRC Employers Helpline - contact details

Taking 'reasonable care' - PAYE tax

Whether you identify the error or HMRC does, 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 made in good faith means that you did not know that you were making incorrect deductions of PAYE tax. If you were aware that you were not deducting PAYE tax correctly from an employee's 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 PAYE and was made in good faith.

If HMRC does 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 accepts your explanation then they may direct that the PAYE tax is paid by the employee. That decision also carries a right of appeal.

Incorrect PAYE tax deductions - previous tax years

If you discover that you have not deducted enough PAYE tax from an employee in a previous tax year, you usually have to pay the outstanding balance to HMRC and bear the cost of the error.

If you have deducted too much, your employee may be repaid by HMRC.

Incorrect NICs - previous tax years

If your employee paid too little NICs in a previous tax year, you must pay the underpaid NICs to HMRC as soon as you know you have paid too little.

If you have made an error in good faith you can recover amounts the employee has underpaid, but there are strict rules about when you can do this.

In these circumstances, you can make deductions from later payments that you make to the employee as long as both the following apply:

  • the extra deduction you make is no greater than the employee's NICs due on each payday
  • you only make extra deductions in the remainder of the tax year in which the error was discovered, and dependent on the cause of the error, the following tax year

If you took too much NICs from your employee in the tax year, you must:

  • use an EYU to show HMRC the overdeduction you have made, showing the negative adjustment required to the employee's NICs year to date totals that you originally showed on your FPS, as well as making adjustments to any other National Insurance year to date data
  • show the difference (positive or negative) between the year to date totals recorded on the last FPS and the correct year to date totals for the relevant National Insurance category letter
  • confirm whether or not you have repaid the over-deduction to the employee, using the yes/no indicator

For example, if the employee had paid £1,000 NICs and only £900 was due, you must show -£100 on the EYU and indicate whether you have already repaid the employee the over-deduction or not.

If you are unable to repay NICs over-deductions made during a tax year when you reported payroll data to HMRC using FPS and EPS, you cannot deduct the amount paid in error from any amount you owe HMRC or get a repayment for it.

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