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HMRC internal manual

Compliance Operational Guidance

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HM Revenue & Customs
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Supporting Guidance: employer compliance: guidance by subject: real time information (RTI): error correction - HMRC find an inaccuracy

COG904250 explains what the guidance on the HMRC website tells employers to do when they become aware of inaccuracies on RTI returns and how they should correct them.

Where you identify an inaccuracy during a compliance check, how you should seek to recover any additional tax and NIC will depend on the period or periods the inaccuracy or inaccuracies relate to and whether you are also seeking to recover non-payroll inaccuracies such as employee benefits.

Note: The law requires and so allows employers to correct inaccuracies by reporting the correct information on a later or additional Full Payment Submission (FPS) or Earlier Year Update (EYU). If an employer wants to correct inaccuracies you have identified on an FPS or EYU, there is nothing in the law which allows you to stop them.

You must

  • tell the employer that it is essential that the correct tax and NIC is passed to the Department for Work & Pensions (DWP) for the purpose of calculating and adjusting payment of Universal Credit
  • calculate and agree the additional liabilities.

Where you discover

  • pre-RTI closed year payroll inaccuracies and
  • RTI closed year payroll inaccuracies and
  • current year payroll inaccuracies and
  • employee benefits

where it is more cost-effective or administratively convenient, see CH411100, the recovery method can be by contract settlement.

Where the employer has the option to self-correct, but

  • status is a risk and
  • a direction under Regulation 72F is considered appropriate

the employer should not self-correct. In these circumstances you can recover by contract settlement. Note: If Regulation 72F is not considered appropriate, the employer has the option to self-correct.

RTI payroll inaccuracies for current year only

Where you identify current year only RTI payroll inaccuracies, once the additional duties have been calculated and agreed you must instruct the employer to correct the current year inaccuracies in an FPS (see COG904240).

You should instruct the employer to correct the current year inaccuracy by

  • submitting a single additional Full Payment Submission (FPS) reporting the total additional pay, tax and NIC year to date figures before submitting their next ‘regular’ FPS; this will correct the position as at the last ‘regular’ FPS or
  • reporting the correct information (pay, tax and NIC year to date figures) on the next ‘regular’ FPS.

The first option will allow you to see that the employer has corrected the inaccuracies and where necessary check the accuracy of the corrections. You will be able to view:

  • FPS returns received in EBS RTI View, see PAYE55010 and
  • individual employee payment details on the National Insurance and PAYE Service (NPS).

Where you identify current year payroll inaccuracies you should not seek to recover by contract settlement.

You should ordinarily encourage the employer to report any discrepancies by using one of the methods described above. This will ensure that the correct pay and tax information is reported on later returns. However, if the employer requests that the additional duties should be included in a contract settlement, and it is more cost-effective or administratively convenient, then you can do so, see CH411100.

RTI payroll only inaccuracies for current year and RTI closed years

Where you identify RTI payroll inaccuracies for current and closed year periods, once the additional duties have been calculated and agreed you should instruct the employer to correct

  • current year inaccuracies by

    • submitting an additional FPS to report the total additional pay, tax and NIC year to date figures before submitting their next regular FPS or
    • reporting the correct year to date figures on their next regular FPS (see above)
  • closed year inaccuracies on an EYU.

Payroll only inaccuracies for current year, RTI closed years and pre-RTI closed years

Where you identify payroll inaccuracies for both RTI and pre-RTI years, once the additional duties have been calculated and agreed you can recover the duties for both the RTI closed years and pre-RTI closed years in a contract settlement. The current year RTI payroll inaccuracies should be corrected on an FPS (see COG904240).

Note: If an employer wants to correct the closed year RTI inaccuracies on an EYU, there is nothing in the law which allows you to stop them.

Where RTI inaccuracies are corrected by submitting an EYU, interest will be chargeable from 19 or 22 April following the end of the tax year the EYU relates to until the date of payment, see COG904270.

Where RTI inaccuracies are included in a contract settlement, interest will be chargeable from 19 or 22 April following the end of the tax year until the expected date of settlement, see COG904270.

Payroll and employee benefit/other inaccuracies

Where you identify both payroll inaccuracies and other liabilities such as

  • voluntary tax
  • Class 1A NIC

for current and closed year periods, once the additional duties have been calculated and agreed you can recover the closed year payroll inaccuracies and other liabilities by contract settlement. The current year RTI payroll inaccuracies should be corrected on an FPS (see above and COG904240).

Note: If an employer wants to correct the closed year RTI inaccuracies on an EYU, there is nothing in the law which allows you to stop them.

Example

During a compliance check in December 2014 you discover that ABC Ltd paid round sum allowances to its employees in June, July, August and September 2014 which were not included in taxable pay. In addition, the list prices of the company vehicles have been understated for 2012-13 and 2013-14.

As the additional duties for the initial 12 month period exceed £1,000 you extend your check.

You identify that the round sum allowances were also paid in 2011, 2012 and 2013 and not included in taxable pay.

Once the additional duties have been calculated and agreed you can include the duties for both the RTI and pre-RTI closed years in a contract settlement (see above), together with interest (see COG904270) and any Schedule 24 penalty due, see CH80000. The current year payroll inaccuracies should be corrected on an FPS (see COG904240).

You must instruct the employer to

  • include future round sum allowances in taxable pay
  • make sure the correct list prices are included on the forms P11D for 2014-15.

Where the employer does not correct inaccuracies on an FPS or EYU as instructed, and you are unable to settle by contract settlement, you must follow current settlement procedures and seek to recover additional liabilities by Regulation 80 determinations and Section 8 notices to recover the tax and NIC due, see COG907210.

Any Schedule 24 inaccuracy should be brought into charge by formal penalty assessment, see COG914180.

Where additional PAYE duties are recovered by contract settlement or by formal settlement action, you are not required to update an individual’s NPS record.

Note: Where additional duties have been agreed and you have instructed the employer to make the correction on an FPS or EYU, you must ask the employer to confirm in writing that they have reported:

  • the correct pay, tax and NIC year to date figures on an additional FPS before their next ‘regular’ FPS
  • the correct total year to date figures on their next ‘regular’ FPS
  • earlier year inaccuracies on an EYU.