Correcting payroll errors from earlier tax years

To correct pay or deductions for a tax year that has ended, an employer now sends another Full Payment Submission for that year showing the correct year to date figures. GOV.UK’s guidance applies this to errors in the tax years from 6 April 2020 to 5 April 2026. The older Earlier Year Update, which reported only the difference, is no longer valid from the 2020 to 2021 tax year onwards. Correcting the report is only half the job: the employer also has to deal with any tax, National Insurance or student loan that was over or under deducted.

When does an error count as an earlier year error?

Until 19 April after the tax year ends, a mistake in the final FPS is corrected under the year end rules covered in our page on payroll year end tasks. HMRC’s Debt Management and Banking Manual at DMBM519230 explains that an employer can send a correction FPS up to and including 19 April following the end of the tax year concerned. From 20 April, the error is an earlier year error and the steps on this page apply.

Current year mistakes are simpler: you update the year to date figures on your next regular FPS. That process is covered in our page on the FPS and EPS.

Should you send an FPS or an Earlier Year Update?

HMRC’s PAYE Manual at PAYE5025 says that from April 2021 the Earlier Year Update is no longer a valid submission type for the 2020 to 2021 tax year, and employers should correct payroll data for 2020 to 2021 and later years by sending a further year to date FPS. GOV.UK’s current guidance on payroll errors says that if the mistake was in the tax years between 6 April 2020 and 5 April 2026, you submit another FPS with the correct year to date figures.

The two methods work differently, which is where many errors start.

	Further FPS (2020 to 2021 onwards)	Earlier Year Update (older years)
What you enter	The corrected year to date totals for the employee	Only the difference, as a plus or minus figure
Example: pay reported as £1,000, should be £1,100	Year to date pay of £1,100	+£100

DMBM519230 gives that example and warns that reporting year to date figures on an Earlier Year Update produces an incorrect charge. The reverse mistake, entering only the difference on a further FPS, is just as damaging, because the FPS replaces the totals HMRC holds.

How do you correct the employee’s pay and tax?

Send an FPS for the tax year in question showing the correct year to date taxable pay and tax for each affected employee. If the employee has left, GOV.UK says to include them in the FPS with corrected year to date figures, keep their original leaving date and use the same or a later payment date than their final FPS.

What if too little tax was deducted?

The employer is liable for tax it should have deducted. Regulation 72 of the Income Tax (Pay As You Earn) Regulations 2003 lets HMRC direct that the employer is not liable for the shortfall if the employer took reasonable care to comply and the failure was due to an error made in good faith (condition A), or if the employee received the pay knowing the employer wilfully failed to deduct tax (condition B). A direction is made by notice. Where it is made, the tax becomes the employee’s to pay, typically through a P800 calculation collected by coding out, or by Simple Assessment.

What if too much tax was deducted?

Once the corrected FPS updates HMRC’s record, HMRC works out whether the employee paid the right tax for the year. GOV.UK says employees who paid too much or too little receive a P800 or a Simple Assessment letter, sent between June and March of the following tax year, and claim any refund from HMRC.

How do you correct National Insurance from an earlier year?

For mistakes in the 2020 to 2021 to 2025 to 2026 tax years, GOV.UK says to send an FPS with the amount you should have deducted.

Too much deducted. If the difference is negative and you still owe the employee a refund, for example because they have left, you must write to HMRC with the reference “Overpaid NI contributions”, the employee’s name, date of birth and National Insurance number, why the overpayment happened, which tax years and how much, and why you cannot pay the employee. Claims for one employee go to National Insurance Contributions and Employer Office, BX9 1AN, and claims for more than one employee to BX9 1BX.
Too little deducted. Pay HMRC the underpayment straight away. You can recover it from the employee, but no more than the employee’s normal contribution for a month in any month, so they pay no more than double. GOV.UK says you can only make these deductions in the tax year when you made the mistake and the year after.
Wrong category letter. Send an additional FPS with the correct category letter and the correct year to date National Insurance for that letter, and correct the employee’s deductions if they paid too much or too little.

What about student loans and the EPS?

Student loan errors from earlier years are treated differently. GOV.UK says you do not need to take any action if you deducted too little, or if you have already submitted your final FPS for that year, and the employee should contact the Student Loans Company. If you deducted too much and have not sent your final FPS for that year, you can repay the employee and send an FPS with the correct student loan year to date figure as at 5 April. Our page on student loan deductions in payroll covers the current year rules.

An EPS for an earlier year is corrected by sending an EPS with the correct year to date figures for the tax year where the mistake was made, for example where statutory pay recovery or Employment Allowance was claimed wrongly.

What happens to the PAYE bill and penalties?

GOV.UK says that if you underpaid HMRC because of a mistake in an FPS or EPS, you correct the report and HMRC adds the underpayment to your next PAYE bill. If you overpaid because of a reporting mistake, HMRC takes it off your next bill. If the underpayment came from entering the wrong amount when paying, pay the balance as soon as possible or you may have to pay interest or a penalty.

HMRC will only charge a penalty for a mistake in an FPS or EPS if you did not take reasonable care or it was deliberate. The behaviour categories are explained in our page on penalties for errors. If the correction changes an employee’s figures for a year in which they were given a P60, give them a replacement P60 or a letter confirming the change.

Worked example

Illustration only. In October 2026 a company finds that a £2,000 bonus paid to an employee in March 2025 was never put through payroll. The error is in the 2024 to 2025 tax year.

The company sends an FPS for 2024 to 2025 showing the employee’s corrected year to date pay, tax and National Insurance, not just the £2,000.
HMRC adds the extra PAYE to the company’s account. The company pays it.
Because the mistake was made in 2024 to 2025, the year in which employee National Insurance could be recovered from pay was 2025 to 2026, which has passed. The company cannot now recover the employee’s share through payroll.
If it took reasonable care and the error was in good faith, the company can ask HMRC to consider a regulation 72 direction so that the unpaid tax is collected from the employee instead.
It gives the employee a replacement P60 or a letter confirming the change.

What mistakes come up most often?

Entering only the difference on a further FPS, which overwrites the correct totals with the wrong ones.
Selecting the wrong tax year in the software, so the correction is applied to the current year.
Correcting the report but forgetting to repay or recover National Insurance from the employee within the time allowed.
Ticking the payment after leaving indicator and entering the same amount in pay in period and year to date, which GOV.UK warns creates a duplicate record.
Assuming an employee will pay under deducted tax. The employer is liable unless HMRC makes a direction.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.