Correcting an overpayment of wages | Makesworth Accountants
EnglishHindiItalianNepaliPortugueseRomanian

Correcting an overpayment of wages

Correcting an overpayment of wages

Correcting an overpayment of wages

Mistakes happen, and it can be very easy inadvertently to pay an employee too much when doing the wages. Perhaps a number was keyed in incorrectly or figures were transposed, or maybe commission was overstated or an employee was paid for more overtime hours than they actually worked.

From an employment law perspective, an employer has the right to recover overpayments of wages from the employee. But what needs to be done to correct the mistake for tax and National Insurance purposes?

Adjustments during the tax year

It is relatively straightforward to correct an overpayment of wages where the mistake is discovered in the same tax year and the employee continues to be employed.

You will need to agree with the employee how the money is to be recovered. You may simply deduct it from future payments, or alternatively the employee may refund the overpayment to you. Where the overpayment is deducted from future payments, the correct approach is to deduct the net overpayment from net pay (i.e. after tax and National Insurance have been deducted).

The mistake should be corrected in the next Full Payment Submission (FPS) sent to HMRC – this should show the correct payments to date and the correct net tax to date. The effect of this is that the PAYE deducted from the overpayment can be set off by reducing the next monthly remittance sent to HMRC. The employer should keep a note of both the reason for the adjustment and the method used to recover the net pay from the employer.

Mistakes discovered after the end of the tax year

If the mistake is not discovered until after the end of the tax year, it will be necessary to submit an FPS showing the correct year to date figures as at 5 April at the end of the tax year in which the mistake occurred. For 2018/19 and earlier tax years, mistakes discovered after the end of the year can also be corrected using an Earlier Year Update (EYU); however, HMRC will not accepts EYUs for correcting 2019/20 mistakes post-year-end.

The employee should also be informed of the mistake and given a replacement P60, clearly marked ‘replacement’. The employer will also need to agree with the employee how the overpayment is to be recovered.

For more information, Book a Free Consultation

Our Offices

Makesworth Accountants in Harrow

Unit-101, First Floor,
Cervantes House, 5-9 Headstone Road,,
Harrow, London HA1 1PD
United Kingdom (UK)
Phone: 020 7993 8850
Fax: 020 7183 5320
Email: info@makesworth.co.uk

Makesworth Accountants in Central London

63/66 Hatton Garden
Fifth Floor Suite 23,
Central London, London EC1N 8LE
United Kingdom (UK)
Phone: 020 7993 8850
Fax: 020 7183 5320
Email: info@makesworth.co.uk

Makesworth Accountants in Ilford

Balfour Business Centre, Suite B15
390-392 High Road,
Ilford, London IG1 1BF
United Kingdom (UK)
Phone: 020 7993 8850
Fax: 020 7183 5320
Email: info@makesworth.co.uk

Proud to be featured in

sanjay k sah acca
accountant offer

Happy with our services? Please leave us a Google Review. Click here

Google Review Stars