Fix problems with running payroll

4. You paid your employee the wrong amount or made incorrect deductions

You can correct a mistake with an employee’s pay or deductions by updating the year-to-date figures in your next regular Full Payment Submission (FPS).

You can also correct it by sending an additional FPS before your next regular FPS is due. You need to:

  • update the ‘this pay period’ figures with the difference between what you originally reported and the correct figures
  • correct the year-to-date figures
  • put the same payment date as the original FPS
  • put the same pay frequency as the original FPS
  • put ‘H - Correction to earlier submission’ in the ‘Late reporting reason’ field

Correct a pension death benefit or flexibility payment

If you’re a pension administrator who needs to correct a flexibility payment or death benefit payment, you must:

  • select the ‘pension flexibility payment’ or ‘pension death benefit payment’ indicator
  • update the ‘pensions drawdown taxable payment’ or ’pensions drawdown non-taxable payment’ fields (or both) with the difference between what you originally reported and the correct figures

If you underpaid your employee

Pay your employee the amount you underpaid them. On or before the day of this payment, send an additional FPS with:

  • the difference between what you originally reported and the correct amount in the ‘In this pay period’ field
  • updated year-to-date figures
  • ‘H - Correction to earlier submission’ in the ‘Late reporting reason’ field

Correct an employee’s National Insurance deductions

What you need to do depends on when you made the mistake.

If the mistake was in this tax year

Repay or deduct the balance from your employee. Update the year-to-date figures to the corrected amount in your next regular FPS or send an additional FPS.

If you deducted too little, you can’t recover more than the employee’s National Insurance contribution due that month.

Example

You deducted £100 too little in January. In February, your software calculates an £80 National Insurance deduction, which means you can recover up to £80 towards the underpayment that month (a £160 deduction in total).

Recover the remaining £20 in another month.

Pay any underpayment to HMRC straight away.

If the mistake was in a previous tax year

Send an Earlier Year Update (EYU) with the difference between:

  • the amount of National Insurance you originally deducted
  • the correct amount you should have deducted

If you deducted or reported too much National Insurance, you also need to set the ‘NIC refund indicator’ to ‘Yes’ or ‘No’.

Put ‘Yes’ if you either:

  • deducted the right amount of National Insurance from your employee, but reported it to HMRC incorrectly - do this even though no refund was due
  • refunded your employee after you deducted too much National Insurance from their pay

Put ‘No’ only if you owe your employee a refund that you haven’t paid, for example because they’ve left your employment.

If you deducted too little National Insurance, pay HMRC the underpayment straight away. You can then recover the amount from your employee by making deductions from their pay.

You can’t recover more than the amount of National Insurance the employee owes in a month (so the employee pays no more than double their normal contribution). Carry over the difference to later months - you can only make deductions in the tax year when you made the mistake and the year after.

Correct an employee’s student loan repayments

What you need to do depends on when you made the mistake.

If the mistake was in this tax year

Repay or deduct the balance from your employee. Update the year-to-date figures to the corrected amount in your next regular FPS or send an additional FPS.

If you deducted too little, you can’t recover more than the student loan repayment due that month.

Example You deducted £50 too little in June. In July, your software calculates a £30 student loan deduction, which means you can recover up to £30 towards the underpayment that month (a £60 deduction in total).

Recover the remaining £20 in another month.

If the mistake was in a previous tax year

If you deducted too little, you don’t need to do anything. Your employee can contact the Student Loans Company to find out how it affects them.

If you deducted too much, repay your employee and:

  • if you noticed the mistake on or before 19 April, send an FPS with the corrected ‘Student loan repayment year to date’ figure as of 5 April for the previous tax year
  • if you noticed the mistake after 19 April, send an Earlier Year Update (EYU) with the difference between what you originally deducted and the correct amount