20.1 How Errors in Payrolls Occur
If you make a minor mistake in your payroll duties it is
important to correct it as soon as possible, to avoid larger repercussions. Of course, picking the correct payroll software is paramount
because you need your software to a) cut down on the possibility of mistakes
from occurring in the first place, and b) allow you to sort them out quickly
and easily, without major fuss.
In this module, we will explore some of the common mistakes
which occur when running payroll duties in a small or large business, as well
as the steps to take in order to correct the mistake. We will also look into
the reasons why an error can occur, as well as reinforcing the importance of
good quality payroll software.
The reason for errors occurring.
This may be down to any number of reasons, from the person
doing the payroll duties not paying attention, and incorrect information being
passed onto that individual, to a software glitch, or not having enough
information to input the correct details in the first place. Errors can and do
happen. The important thing is knowing that they have happened, and taking
steps to correct them quickly and effectively.
One reason for an error occurring could also be because the
software a business is using is not up to date. As we mentioned in our previous
module, always make sure you use software which is on the HMRC website tested
and recommended list - this means that these packages are updated whenever a
new tax year begins or whenever new legislation is released from HMRC
themselves.
Errors will easily occur if you are working with old
software, so always ensure your software automatically updates itself
accordingly.
20.2 Consequences of Not Correcting Errors to Your Payroll
Submission to HMRC
As soon as you spot a mistake, amend it immediately. The consequences of not fixing any errors are that they will
simply escalate, meaning your next month's full payment submission will be
incorrect too, and so on, and so on. At the end of the tax year, you may then
find yourself with a costly mistake to fix, which may mean you incur financial
penalties because of it.
HMRC will rarely issue a penalty for an error which is
genuine and sorted out immediately, as long as the error is relatively small
and steps have been taken to a) recognise the error, and b) correct it straight
away. The case of penalties and trouble comes when an error is either made
deliberately or is not resolved when recognised.
Making sure your payroll staff are well-trained and kept up
to date with developments is an imperative step to take. There are many day
training courses available and regular refresher training is always
recommended. Whenever a member of the payroll staff goes off sick, it is good
common sense to have someone who can step into their shoes, who is up to date
with developments, and someone who has shadowed regular payroll staff on a
regular basis.
This means that mistakes are much less likely to happen in
the first place - prevention is always better than cure! We know why a mistake
can happen and what the consequences of not sorting a mistake out are, let's
look at a few common minor errors and what you can do to resolve them quickly
and effectively.
Fact
Every year HMRC receives incorrect or incomplete information
from employers. Studies have revealed that staff have been entered as Mr, Ms or
Mrs Dummy, while some people were apparently 200 years old after incorrect
dates of birth were submitted to the PAYE system.
Source: mynewsdesk.com
20.3 What to Do If You Pay Your Employee Too Little or Too
Much
This particular instance is probably one of the most common
errors a payroll department will come across, and it can occur because of many
different reasons.
Perhaps an employee has started their contract halfway
through the month and the incorrect start date was communicated to the payroll
department by the line manager, or perhaps an employee has changed departments
and the new salary details have not yet been communicated. As you can see, many
of the reasons for this kind of error are due to problems with communication
between departments.
These errors can also happen when a company outsources their
payroll duties to an accountant or bookkeeper because changes in circumstances
can sometimes not be passed over as quickly as they should be. It is for this
reason that any changes should be passed over as soon as they become apparent,
to avoid delays and problems with deadlines.
Something this small oversight can actually cause a lot of
trouble and distress for the employee, whether they are paid too little or too
much - if they are paid too much, they
will need to pay it back next week or month, and if they are paid too little,
what do they do when they need to pay the rent?
All this disruption and upset should be avoided, as it
simply is not the fault of the employee in the first place! Avoiding this
problem is always the best first step, but if it does happen, it can be sorted
out quite simply from a technical point of view and from an HMRC reporting
point of view.
In this instance:
Correct the error, whether you paid the wrong amount or you
made the incorrect deductions, by updating the 'year to date' figures in your
next full payment submission (FPS) to HMRC. Make sure you do it in the next
submission and do not leave it until a later date, to avoid that snowball
effect we were talking about and any penalties from HMRC for not fixing the
problem quickly.
Another option is to send a separate full payment submission
(FPS) before the usual one (either weekly or monthly, depending on pay
frequency), to show the correct figures.
In this, you will need to correct the 'this pay period'
field with the amount difference between what you reported in the incorrect
submission and what the correct figures actually are.
Ensure the payment date is the same as the date you put on
your original full payment submission (FPS).
Enter 'H - correction to earlier submission' in the field
which states 'late reporting reason'. This will avoid confusion and explain to
HMRC why you are sending another submission or amending the previous month's.
If you have underpaid the employee - you will need to pay
them the difference either before the next payday or on it, but no later than
this. In this instance, send an additional full payment submission (FPS)
stating the difference between the two figures, what you reported previously
and the correct figures, updating the 'year to date' field again, and entering
'H - correction to earlier submission' in the same 'late reporting reason'
field.
If you have overpaid the employee - you will need to discuss
how to retrieve the money, e.g. from their next wage, updating your next full
payment submission (FPS) accordingly. If this is a large amount, this may be
taken in instalments - this is something you need to discuss and come to an
arrangement on.
20.4 What to Do If You Report Wrong Pay or Deductions to
HMRC - You pay HMRC Incorrectly
As with any mistake, reporting incorrect information to HMRC
must be dealt with as soon as the error comes to light. Obviously, avoiding the mistake in the first place is always
the best option but this is not always possible.
If you do report the wrong pay or deductions to HMRC, follow
these steps:
On your next full payment submission (FPS) to HMRC, ensure
you update the 'year to date' figures.
If the problem is evident in a previous tax year, you need
to send an Earlier Year Update (EYU), which will show the difference in amount
between what you reported the first time around, and the correct figures. If
your software package will not allow you to create this report, the HMRC Basic
PAYE Tools download will. We discussed this in detail in our last module, and
this is a useful tool to run alongside your payroll software, or for smaller
businesses to use with under 10 employees.
If you find you need to make a correction to the payment
date in your full payment submission (FPS):
The date used on your full payment submission (FPS) should
always be the date you actually paid your employees. To correct this, you need
to send a further full payment submission (FPS) which features the correct
payment date.
Enter 'H - correction to earlier submission' in the field
stating 'late reporting reason'.
Ensure the new submission is sent by the 19th of the month
after you last sent your original submission.
If you find you inadvertently paid HMRC the wrong amount on
your full payment submission (FPS):
If you did not pay HMRC enough, you will need to correct the
mistake on your next full payment submission (FPS). You need to do this as soon
as possible, otherwise, you may find HMRC adds interest or a penalty to your
account. The underpaid amount will be added to your next PAYE bill on your next
submission, and you will need to pay this amount at that time, to bring your
account up to date.
If you paid HMRC too much, you will need to correct the
mistake on your next full payment submission (FPS). HMRC will then take the
extra amount you paid off your next PAYE bill on your next submission.
20.5 How to Correct an Employee's Personal Information -
Start/Leaving Date
The importance of keeping your employees' payroll records up
to date should have become apparent by reading this far into this course.
However, there will be instances whereby the information on
a payroll record needs to be changed. For example, this could be because an
employee has got married and needs to change their surname or it could be
because you have noticed an error on a start or leaving date of employment, and
this needs to be amended immediately.
Whatever the reason for the error or change, these are the
steps you need to take-
-To correct a start date or leaving date - simply update that
particular employee's payroll record. You do not need to report an amendment on
your full payment submission (FPS), as this could result in a duplicate record
being created, which causes several other problems in addition.
-To correct personal information - it is your employee's
responsibility to inform HMRC of any change of personal details, such as
surname or address; however, as their employer, you need to update their
payroll record on your payroll software immediately before the next submission
to HMRC.
-Do not include more than one correction in the same FPS -
for example, avoid correcting both name and date of birth in a single FPS. This
is because payroll records may be duplicated and you may receive a wrong PAYE
bill.
20.6 What to Do If Your PAYE Bill Does Not Seem Correct
Over the course of running your own payroll you will become
familiar with what seems right and what seems 'off' or incorrect.
If you find that your PAYE bill for a particular week or
month does not seem right, there are a number of reasons why that could be:
-Check your full payment submission (FPS) or employer
payment summary (EPS) for any glaring mistakes
-Check that you inputted the correct date on your full
payment submission (FPS) report i.e. the date you paid your employees, not the
date you sent it
-Check that you inputted all other details correctly on your
full payment submission (FPS), including pay figures and deductions
-Check that you inputted the correct figures into your
employer payment summary (EPS) when claiming back any amounts, such as
statutory sick pay
-Check that you paid HMRC the correct amount last time - if
you paid too much or too little, then you need to correct it in your next full
payment submission (FPS), as we detailed in our last section
-Correct any incorrect information on both your full payment
submission (FPS) and your employer payment summary (EPS)
If all else fails and you still cannot see an error, contact
the HMRC employer helpline for advice and guidance
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