Corrections and adjustments
Information and examples about corrections and adjustments to benefits in kind and expenses.
Employers can report corrections and adjustments after the end of the tax year to any benefits in kind (BiKs) and taxable expenses that they estimated during the year.
They should report these changes by revising the final Full Payment Submission (FPS) within a certain period after the end of the tax year. The deadline has not been confirmed, but is expected to be before 19 July following the end of the tax year.
Employers will be expected to pay any additional amounts due by 22 July (or 19 July if paying by post) following the end of the tax year to avoid potential late payment penalties or late payment interest. Employers will not need to give a reason for the changes.
Employers will need to issue a revised P60 (or an alternative) showing the corrected figures if they do both the following:
- report a correction or adjustment after the end of the tax year
- have already issued a P60 to affected employees
Read Dealing with employees who leave during the tax year for more information about payments after an employee leaves.
If employers find an error in figures that have already been reported to HMRC, they are encouraged to report the correct values as soon as possible, instead of waiting until after the end of the tax year.
HMRC is not planning to allow a carry forward facility to correct errors in a previous tax year.
Example — end-of-year adjustment
Paul gets a new car in March as a benefit from his employer. The employer cannot confirm the value of the new car in-year, but they know that the value of Paul’s original car benefit was £12,000.
Paul is paid monthly, so the employer payrolls £1,000 car benefit each month based on Paul’s previous car benefit value.
In May of the following tax year, the employer confirms that Paul’s total car benefit for the previous tax year was £15,000. Paul’s employer revises the final FPS of the previous tax year to account for the additional £3,000 of car benefit that wasn’t reported in-year.
After HMRC reconciles Paul’s tax year, we send him a P800 or PA302 to collect the underpayment of tax. If he files a Self Assessment tax return, it is collected through his Self Assessment tax bill.
HMRC adds the underpayment of Class 1A National Insurance contributions to the employer’s PAYE bill.
The employer pays the additional Class 1A National Insurance contributions to HMRC by 22 July (or 19 July if paying by post) in the following tax year to avoid late payment penalties or late payment interest.
Employers should account for in-year corrections and adjustments in a future FPS within the tax year. If this is not possible, for example, if they cannot identify a new reasonable estimate, they can account for tax and National Insurance contributions using the end of year BiK update process. If employers use the end-of-year BiK update process, they need to update the final FPS within a certain period. The deadline has not been confirmed, but is expected to be before 19 July following the end of the tax year.
Read about what to do if you made a mistake in a previous FPS.
Employers should work with their payroll providers if they can, so that they are aware of the taxable value of BiKs provided as soon as possible.
Any update received after 19 April of the following tax year will be deemed to be an end-of-year correction.
Employers must always report a BiK and its correct taxable value (or a reasonable estimate if they do not know the value) either:
- when they become aware of the provision of a BiK and its taxable value
- where there is a change in circumstances such that the taxable value changes — in such cases employers will need to revisit the value being payrolled and recalculate the taxable value to be payrolled across the remainder of the tax year
HMRC will make technical specifications available to software developers in line with the annual change cycle for the first stage of mandatory payrolling (phase 1). This will allow software providers to update their software to comply with HMRC specifications. Read more about the phased introduction of mandatory payrolling for benefits in kind.
Example — in-year adjustment
An employer provides a medical benefit to Neil.
The employer knows they won’t receive confirmation of the value of the benefit from their benefit provider until August of the current tax year, but they do know that the total value of Neil’s medical benefit in the previous tax year was £1,200. The employer expects that the cash equivalent will stay the same this year.
Neil is paid monthly, and the employer payrolls £100 medical benefit each month based on the previous year’s medical benefit value.
In August, the employer gets a statement confirming that Neil’s medical benefit will be £1,500 for the current year.
The total amount payrolled in the tax year to date is £500 (£100 per month x 5 months).
The employer calculates the amount to be payrolled over the course of the remainder of the tax year by dividing the amount that has not been payrolled (£,1000) over the number of remaining pay periods (7) in the tax year.
£1,000 divided by 7 is £142.85.
When the employer next runs payroll in September, they report £142.85 for the benefit.
HMRC automatically collects the shortfall of tax in previous months from Neil’s September to March salaries.
As £500 was reported in the tax year prior to the correction, and the corrected amount of £142.85 was reported in the final 7 months of the year, the full value of Neil’s £1,500 medical benefit will have been payrolled.
The underpayment of Class 1A National Insurance contributions is collected through the employer’s PAYE bill over the remainder of the tax year.
The employer is not late paying Income Tax and National Insurance contributions because the employer:
- reports and pays the additional liability over the remainder of the tax year
- used a reasonable estimate until they knew the actual amount to payroll
- the total amount was payrolled over the remainder of the tax year
The BiKs update process can be used to record any under or over-reporting of BiK data after the end of the tax year. Where this process is used, all BiKs should be reported by a date to be confirmed, which is likely to be before 19 July following the end of the tax year.
The additional tax due or repayable will be taken into account by the existing end-of-year reconciliation process for tax (P800), Simple Assessment or Self Assessment.
Any additional Class 1A National Insurance contributions due will be payable by 22 July (or 19 July if paying by post) following the end of the tax year.
Example — benefit that could be accounted for during the year
An employer provides Sam with a car benefit from February.
As this is a new benefit, payroll is unaware of it before the end of the tax year in April, so his employer does not report the benefit in the current tax year.
Payroll receives notification following the end of the tax year, and is now aware that for the previous tax year, the value of the car benefit was £667.
The employer revises the final FPS of the previous tax year to account for the £667 of benefit that wasn’t reported in-year.
After HMRC reconciles Sam’s tax year, he gets a P800 or PA302 to collect the underpayment of tax. If he completes a Self Assessment tax return, it is collected through his Self Assessment tax bill.
HMRC adds the underpayment of Class 1A National Insurance contributions to the employer’s PAYE bill.
The employer pays the the additional Class 1A National Insurance contributions by 19 July or 22 July (if paying electronically) in the following tax year to avoid late payment penalties or late payment interest.
Sam’s employer is aware of the actual cash equivalent for the current tax year, based on the previous year’s benefit amount. The employer estimates that for the current year, the value of the car benefit will be £4,002. Sam will have 12 pay periods in the tax year.
The employer payrolls £333.50 (£4,002 divided by 12) of car benefit a month for the current tax year. They can revise this amount after the end of the tax year if needed.