22nd September 2020
Disruptive or costly mistakes, especially to your payroll, can be all too common. Even getting the basics right – taxes, for example – is not always an easy feat. Mistakes, errors, and slips in your payroll reporting can, and likely will, be scrutinised by the watchful HM Revenue & Customs (HMRC) in the UK. Penalties, though unwelcome, are often reversable with appeals and reasonable care in strong measure. Yet, not all mistakes are created equal. The HMRC can, and does, make its share of blunders.
Does the HMRC make mistakes?
Some mistakes cost more than others. But if the HMRC are culpable then a firm reverse on any costly penalties could help your business reclaim lost money and time. Not shy to past blunders, the HMRC nowadays maintains a degree of transparency and openness – in the shape of a complaints process – that has helped many reclaim finances seemingly lost on mistakes.
What, exactly, counts as an error?
- Incorrect, outdated, or non-authorised PAYE tax codes.
- Typos and other inaccuracies with employee information, especially where additional incomes and pensions are concerned.
- Snags with software (especially approaching the new tax year).
Even for the HMRC, which regulates taxes, payments and customs in the UK, human error and inaccuracies can be identified, often in high numbers. There’s no welcome moment to have your payroll pained by costly mistakes, especially during times of economic doubt. And so, it helps to understand the common mistakes, how to respond to them, and who is at fault.
HMRC tax refund mistake
It helps to be wise and alert about HMRC tax refund mistakes. One of the most frequent mistakes regards tax overpayments and underpayments. In the first scenario, HMRC will determine if you have overpaid in tax contributions and are duly eligible for a refund, or tax rebate. However, if you’re owing more in your tax contributions, then HMRC will issue a further bill, known as a P800 or Simple Assessment Letter, to address the supposedly missing funds.
Inaccuracies in tax records are the most common culprits for these kinds of mistakes. This results in HMRC enquiring into your tax contributions, often after consulting tax (mis)calculations. Despite being an authority on tax administration, you can still challenge letters or penalties from the HMRC that are suspected of being inaccurate.
Another common scenario, HMRC might administer incorrect rex refunds, essentially falling short on your rebate. If this occurs, tax slips can hurt your payroll, costing your already busy operation time and money. It pays to check your tax calculations and bills with a scrutinous focus to correct costly mistakes.
Inaccuracies are most frequent in the following areas:
- Pay, or deductions
- Start and leaving dates for employees
- Any other employee information
- Payment dates
- National Insurance
HMRC PAYE mistakes
PAYE, or pay-as-you-earn tax against employees’ income, is another commonly mistaken area. Similar to other pains, it can be in your best interest to prepare for, or anticipate, HMRC PAYE mistakes. HMRC is regularly tightening its focus on tax avoidance, which has elevated tax as a conversational point for many businesses. Yet, tax errors can seem casual at times. Miscalculations can result from any number of reasons, such as additional sources of income or incorrect or missing paperwork (P45, P45U, P45ESA). The HMRC will often cite operational error as the leading source of tax errors and it encourages businesses to routinely review and verify tax calculations.
If the HMRC made a mistake, then you can challenge this through a formal process. Though transparent, the receptiveness of the HMRC has long been criticised, especially with its lengthy call waiting periods. For businesses big and small, it helps to partner with a payroll expert to navigate these kinds of delays.
When is the employer responsible for tax mistakes?
If it is a snag in running payroll and the riddle of taxation issues results from missing or incorrect employee information, then the employee simply needs to liaise with staff to keep up to date with this information. When PAYE is mistaken, it’s the employee’s responsibility to correct and use the proper PAYE code. Employee’s with multiple pensions or jobs can confuse the PAYE system, which is a familiar error according to the HMRC.
Yet, with any discrepancy in tax the HMRC operates in good faith and allows for a counter explanation. A careful review, with evidence, can reverse penalties, and move responsibility away from the employer. In scenarios with the HMRC hasn’t made this gesture, or you suspect costly miscalculations may be upsetting your payroll, then you can directly approach the HMRC for an explanation and have it overturned.
If your business is owed where the HMRC made a mistake then overdue money will usually be reviewed and deducted on your next bill. If the error occurs between tax years, then the mistake can be corrected on the next report.
When is the employee responsible for tax mistakes?
Establishing culpability is not always a straightforward task. Often the HMRC will send taxation concerns to an employee, even if the mistake occurred elsewhere. If inaccuracies are being a burden to the employer’s records, and an employee has willingly supplied falsified information, then they would be responsible for paying tax penalties. Honest disclosures can save time and money, especially if it regards extra incomes beyond your contract with an employer.
Responding directly is often the first step, especially if it’s an HMRC tax refund mistake. Likewise, if there’s a HMRC PAYE mistake, you should consider how to respond to it. If it’s about outstanding funds or a rebate, you’ll need to assess the bill, any calculations and try to discern where the figures first came from – and what they mean for you. It helps to compare sources of information to review the accuracy of unexpected tax bills. Does your P800 match your P60, P45, P11D and other banking statements? Lastly, reference any allowances you currently claim, which can be an afterthought in hasty tax calculations.
By entrusting an expert like FMP with your payroll needs, you can avoid costly errors or mistakes from frustrating your business operation. A strong partner, like a good investment, can help your payroll navigate the pains and avoid making these kinds of mistakes.