Costly Payroll Mistakes and How to Avoid Them

It’s often a struggle fitting in the payroll processing but clearly it’s important to avoid mistakes which can quickly lead to staff problems and significant fines.

Here are some of our experiences:

Examples of payroll and auto enrollment problems


Specific inherited errors - Payroll

How we resolved


Client 1

Incorrect pay submissions to HMRC

Pay components set up incorrectly

Attachment of earnings incorrectly deducted

Corrected all issues and submitted revised info to HMRC

Client 2

Non-filing penalties, fines etc. (5 schemes)

Brought all PAYE schemes up to date and successfully appealed 16 penalties

Client 3

5 incorrect annual payrolls run for Director only businesses

Incorrect treatment of CIS.

Reran and resubmitted

Ensured robust reporting processes in place going forwards. Successfully appealed penalties.

Client 4

Claim of Employment Allowance had been wrong, the company was deemed to be in a group therefore should not have claimed

Ensured that HMRC was notified to remove the claim.


Specific inherited errors - Auto enrolment

How we resolved

Client 5

NHS pension contributions were being incorrectly calculated

Historic analysis and re-calculation provided to client, outstanding contributions paid to pension provider

Client 6

Pension scheme had been set up incorrectly leading to under deduction of contributions across 2 tax years. Previously reported to the Pension Regulator as contributions had not been uploaded to the Pension provider

Reviewed, analysed and corrected all members and employer contributions

Client 7

Unable to add a payroll to TPR for re-declaration

Called the TPR, found that they submitted a Declaration of Compliance in June 16, then filed an exemption which is why the system didn’t allow a re Declaration. TPR needed to re-activate them.

Not specific but common errors



Directors set up incorrectly as employees

NI incorrectly calculated

Wrong SMP information given

Wrong amounts paid, wrong ending dates etc.

Employment Allowance not claimed or wrongly claimed

Not claimed or incorrectly claimed

Not informing us of leavers in the current year

End of year figures then inconsistent with HMRC

Tax codes not uplifted for the current year

Wrong tax calculations

Pensions being calculated incorrectly re tax relief, e.g. pre-tax when it should be post tax or opposite

Double tax relief to employee, or no tax relief at all

Pensions being calculated on full salary when it should be on qualified earnings only

Wrong calculations for employees and employers















Some suggestions if you run the payroll yourselves

Set it up correctly

An essential requirement otherwise you’ll risk always being wrong and it will catch up with you some day.

Keep it accurate

This may sound obvious but we’ve seen many examples of slackness, errors, gaps and issues. It’s surprisingly common for the wrong amounts to be paid which can lead to all sorts of issues.

Keep up with changes in payroll and employment laws

Otherwise costly mistakes can be made. When this affects employees, considerable annoyance or even upset can be caused.

Avoid penalties

Keep to HMRC deadlines. Penalties from late filing or payroll errors can be high and nowadays there’s no scope for being late with payments to HMRC. You need to know precisely what you are required to do and stick to it, all the time.

Keep track of employee matters affecting the payroll

Such as benefits or student loans which may change their tax code. If these are not dealt with properly there may be some costly amendments, possibly upsetting employees and facing your business with a tax bill.

Avoid paying a contractor when they are really an employee

If you employ contractors or freelancers you need to understand the rules. When might they be regarded by HMRC as an employee and must then be on the payroll, subject to PAYE and NIC? Unfortunately, HMRC can go back years in claiming unpaid taxes.

Keep good records

You should be disciplined in recording everything clearly and keep all the information for the current tax year plus the preceding three. Examples include starting and leaving dates, maternity dates, benefits, rates of pay, time.

Handle childcare vouchers correctly

If these are through a salary sacrifice scheme then they need to be deducted from gross salary before tax. If not then you will be missing out on National Insurance savings and employees will be overtaxed.

This entry was posted in Payroll and tagged in Payroll by Caroline