What Happens if an Employer Makes a Mistake with PAYE?

Employers must deduct tax and National Insurance from the wages they pay to employees, and report these deductions to HMRC using the Pay As You Earn (PAYE) system. The process of PAYE reporting relies on employers to deduct and report these figures correctly. We’ll use this article to explain what happens next if an employer reports incorrect information to HMRC.

What happens if an employer uses the wrong tax code?

Not using the right tax code inevitably leads to errors in PAYE deductions which can, in turn, result in overpaid or underpaid tax. HMRC tend to approach the employee directly to collect any underpaid tax though, which can be an unpleasant surprise when the P800 notification letter drops through the letterbox.

If the underpayment is as a result of the employer’s error, it’s their problem to fix (even if they’re a bit reluctant to acknowledge this).

Any employee can ask their employer to review their records, or HMRC can ask to check them so they can identify the source of the mistake. Even if the error is caused by the employer, HMRC will still expect the employee to pay the tax they owe (though it may be possible to arrange time to pay).

It’s also worth double-checking that it’s not HMRC’s mistake – that also happens!

Does everyone get a P800?

Not everybody receives a P800 – the name given to the tax calculation which shows your taxable income and tax paid. A P800 is only used to notify people if the wrong amount of tax has been paid, whether that’s too much or not enough.

If you’re registered for Self Assessment then you won’t receive a P800 even if the wrong amount has been paid. Instead, your Self Assessment tax bill will be adjusted to reflect the new calculation.

Who do I tell if my tax calculation is wrong?

You should let your employer know about any tax mistakes as soon as possible, as it will be up to them to correct it. If you do get a tax query from HMRC, and you’re self-employed as well as working for an employer, it’s well worth double-checking where the mistake was made, before asking for a meeting with HR!

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