If you’re an employer using PAYE, you probably know you need to deduct Income Tax and National Insurance from your employees’ wages and send these on to HMRC.
But that’s not all.
It’s also your responsibility to report payroll information to HMRC accurately and on time, with mistakes or missed deadlines potentially leading to financial penalties.
Before you panic, we’ll take you through the payroll information you, as an employer, need to submit – as well as how to make sure you avoid PAYE penalties.
What is PAYE?
As a quick refresher, you’ll normally need to register as an employer for the Pay As You Earn (PAYE) scheme before an employee’s first payday if they earn £129 or more per week (£6,708 per year), have another job or a pension, or receive expenses or benefits. It’s also worth noting that once you pay someone more than £96 a week, you’ll start paying employer National Insurance.
Once registered, you’ll need to deduct the tax and National Insurance your employees owe on their wages each time you run payroll, and then send these amounts to HMRC.
In a sense, it sees employers act as tax collectors on HMRC’s behalf.
Note that you must pay your PAYE bill by the 22nd of the following month (or the 19th if you’re paying by post).
What PAYE information do employers need to report?
In addition to any deductions from your employees’ wages, you’ll need to send HMRC a Full Payment Submission (FPS) explaining what amounts were paid and deducted – and why.
It’s your responsibility to tell HMRC about the people you employ and how much you pay them, as well as the details of any statutory payments (e.g. sick pay).
This includes employees who earn below the Lower Earnings Limit (£129 per week), and those you only pay once a year.
You should also inform them if you no longer employ anyone and need to deregister from PAYE entirely.
This information is reported using Real Time Information (RTI) submissions, which are sent in real time, as they happen, rather than waiting until the end of the year to report everything.
RTI submissions must be sent using recognised payroll software.
When do employers need to submit PAYE records?
An FPS is normally sent on or before the employee’s payday.
You’ll send these updates each tax month, which runs from the 6th of the month to the 5th of the next month.
For example, tax month one is the 6th April to the 5th May, tax month two is the 6th May to the 5th of June, etc.
If you don’t pay any employee during a particular tax month, you generally do not send an FPS for that month.
Instead, you send an Employer Payment Summary (EPS) to tell HMRC that nobody was paid.
What happens if PAYE reports are submitted late?
If PAYE reports are submitted late, HMRC may issue a late filing penalty.
This can apply if an employer submits an FPS late, fails to send the expected number of FPS reports, or does not send an Employer Payment Summary (EPS) when no employees were paid in a tax month.
Employers who submit PAYE reports late may face monthly penalties ranging from £100 to £400, depending on the size of their workforce.
HMRC will normally not charge a penalty for the first late filing in a tax year (except for employers registered as annual schemes), and there is also generally no penalty where an FPS is late but all payments reported on it have been submitted within three days of the employee’s payday.
If an employer fails to submit the required FPS or EPS, then HMRC can also create a specified charge estimating how much PAYE it believes is due, based on the employer’s previous filing and payment history.
In order to replace that estimate with the correct amount, the missing report must still be submitted.
What happens if you make a mistake on a PAYE submission?
Making a mistake on a PAYE submission does not automatically result in a penalty, although employers should try to correct errors as soon as possible.
This is because incorrect information can affect both employee records and the amount of PAYE that HMRC believes is due.
If the error results in an underpayment, HMRC may add the amount to your next PAYE bill.
Alternatively, if it results in an overpayment, the amount can typically be offset against a future bill (or potentially refunded).
Penalties apply where it is judged that reasonable care was not taken, or incorrect information was submitted deliberately.
How employers can avoid PAYE penalties
In a general sense, you should focus on running payroll consistently and maintaining accurate payroll records.
It’s also good practice to submit PAYE reports ahead of deadlines to be on the safe side, as things will inevitably go wrong, so you want to leave yourself some wiggle room.
If you do find that you’ve made a mistake on a PAYE submission, the important thing is to correct it as soon as possible.
For an error in an FPS (e.g. incorrect pay or deductions), employers will usually just correct the year-to-date figures in their next regular FPS.
If it was an error in an EPS, employers should submit another EPS containing the correct year-to-date figures.
Lastly, consider using good payroll software to streamline the whole process and minimise errors that could lead to penalties.
You could also hire an accountant or bookkeeper to help manage your payroll, and this would allow you to get back to focusing on growing your business.
Find more help in our online accounting hub, and learn more about how to find the right accountant for your business.
