Fix PAYE problems

PAYE troubleshooting guide

Everyone makes mistakes with payroll. Fixing them quickly and correctly minimises penalties and keeps your employees happy.

Choose your problem:

• Paid an employee the wrong amount
• Deducted wrong tax or NI
• Used wrong tax code
• Submitted RTI late
• Paid HMRC late
• Received letter from HMRC
• HMRC compliance check

Paid an employee the wrong amount

If you've overpaid or underpaid an employee:

Overpayment recovery: You can deduct overpayments from future wages, but cannot reduce pay below minimum wage. Get written agreement for larger deductions.

Deducted wrong tax or NI

Tax and NI errors are usually caught by payroll software year-to-date calculations:

Employee underpaid tax: Deduct extra in future pay runs to catch up (year-to-date figures will balance).

Employee overpaid tax: Refund through payroll - they'll see it as reduced deductions.

After tax year ends: HMRC will usually adjust the employee's tax code for the next year.

Used wrong tax code

Tax code errors are common, especially for new starters:

HMRC sent wrong code: Apply the code HMRC gives you, even if you think it's wrong. The employee should contact HMRC directly.

You applied wrong code: Correct it and the year-to-date calculation will adjust the tax automatically.

Emergency tax code: Only use when you have no P45 and no starter checklist response.

Submitted RTI late

FPS should be submitted on or before payday. If you're late:

Reasonable excuse: If you have a genuine reason (serious illness, bereavement, HMRC system failure), you can appeal the penalty.

3-day easement: FPS submitted within 3 days of payday will not attract penalties in most cases.

Paid HMRC late

Payment deadlines are strict - electronic by 22nd, cheque by 19th:

Interest: HMRC charges interest from the due date until payment, regardless of whether penalties apply.

Prevention: Set up Direct Debit to pay automatically on the 22nd.

Received letter from HMRC

HMRC sends different types of letters. Identify yours and respond appropriately:

Do not ignore HMRC letters. They do not go away and penalties increase over time.

HMRC compliance check

If HMRC announces a compliance check, do not panic - most are routine:

Your rights:

• Usually 7-14 days notice before visit
• Right to choose location (your premises or HMRC office)
• Right to have an accountant or adviser present
• Right to appeal any penalty decisions

Getting help

If you're stuck or the problem is complex:

When to get professional help:

• Large discrepancies (more than one tax period)
• Multiple employees affected
• HMRC investigation or compliance check
• Historical errors from previous years
• Complex situations (TUPE, business sale or similar)