Mistake with payroll and no-one can help

semma19 · 10 November 2018 at 2:42PM

Before anyone jumps in: yes, I have contacted HMRC about this both as an employee and an employer. As an employee, I was told to ring the employers' helpline. As an employer, I was told to ask my bookkeeping software provider to revert their software. FreeAgent said they cannot do anything and I need to speak to HMRC again. Perhaps worth noting that I was cut off from HMRC 4 times and begun to think it was deliberate. Every person I spoke to could not have sounded more miserable.

I run my own ltd company and set myself up as an employee. Stupidly, on the payroll profile I entered an incorrect figure for 'total earnings for this employee from previous employment'. Let's say I added £1,000 (it really was a random figure - I got the wrong box). The salary was also the bare minimum (£700) so nothing seemed to be affected in terms of tax and NI liability. I only noticed this mistake once I had left the company and given myself a P45.

What's 'complicated' is that actually, I wasn't 'employed' at all this tax year before this. I worked as a sole trader, and earned a decent amount. So I have several questions (and believe me I did ask various HMRC staff and got different answers/some didn't even understand... frustrated is not the word...).

More info:
Sole trader from start of tax year until I became a director in June
Added myself as an employee to get a £700/month salary in August
Left in October as got an unrelated other job
Stayed as a director
As a sole trader, exceeded my personal allowance

-Am I right in saying that when I set myself up as an employee I should have put '0' for previous earnings, as my sole trader earnings will be delcared in my self-assessment and tax due calculated then? Obviously I'm aware I'll later pay tax on the £700/month salary I received, as I'm already over my personal allowance for the year. FreeAgent though wasn't aware of that and my payslip correctly had no tax deducted.
-Will this mistake actually make a difference? Is that figure only for the purposes of working out the tax to be taken from the employee's salary?
-Should I just write to HMRC?

Dazed_and_confused · 10 November 2018 at 3:11PM

What declaration did you sign (as the employee) on the new starter declaration form you, as the employer, would have given to you as the employee.

Overall it's unlikely to make a difference. To be honest it's not really clear from your post exactly what the problem you think it has caused so far actually is (I could hazard a guess but that's not going to help, facts are best when it comes to tax!)

What would you be writing to HMRC about??

Blackbeard_of_Perranporth · 10 November 2018 at 3:56PM

I suggest OP gets an accountant to do her pay!

comeandgo · 10 November 2018 at 4:12PM

You should have 0 as previous earnings as self employed figures not taxed under PAYE, which is the tax system employees are taxed under. What was your tax code? I ask as I would expect your first pay under PAYE to sort out any underpaid tax.
I would not bother writing to anyone but keep all the print outs in case HMRC quiz you on the figures next year.

semma19 · 10 November 2018 at 6:11PM

Yes, I think I should have 0.
No, I do not need an accountant to do my pay. I know exactly the mistake I made. My question is about the impact this will have on tax paid at the end of the tax year.
I did not sign any declaration. I simply entered an incorrect figure in the 'previous earnings' box when setting up the payroll profile.
My question is about whether this figure has any direct bearing on HMRC's figures about the employee (also me)? Given that all other tax matters seem fine (self-employed income as sole trader to be delcared and tax paid on that/payslip amount from my ltd company correctly not deducted any tax).
I've not said it HAS caused a problem, I'm asking if it WILL cause a problem.
I'm asking: what bearing does the employee's previous earnings figure have on their new employment tax status? I imagine if I'd put £60,000 in, then despite receiving a £700/month gross salary for 2 months I would have had lots of tax deducted automatically from my payslips?
My tax code was 1185L. Not really sure how I can be clearer.

I'll try again!
-Added the previous earnings figure for the employee (which happens to be me) as something like £1,000 (a random figure that is nothing to do with my previous earnings and that was meant for a different section)
-Not employed before this (only sole trader) so figure should have been 0
-Given that tax code and deductions (no deductions) seem correct does it actually matter/does HMRC do anything with this figure - presume not as I'll be doing self-assessment anyway?

Isn't it obvious what I'd be writing to HMRC about? 'Dear HMRC, when I set up this employee I said her previous earnings were x, actually they were 0.'

Pennywise · 10 November 2018 at 7:57PM

Why you're having problems is that HMRC's default position is that mistakes should be corrected by submitting corrected payroll returns. Unfortunately, Freeagent doesn't support the submission of corrected returns, so you're in limbo. The actual answer is to use a different payroll software capable of submitted correcting returns. I suspect that if you write to HMRC, their reply (if they bother replying) will be that you need to submit correcting submissions via payroll software.

Dazed_and_confused · 10 November 2018 at 9:17PM

My question is about the impact this will have on tax paid at the end of the tax year.

Absolutely none. You are completing a Self Assessment return so you decide what to enter on the return as income not HMRC.

I did not sign any declaration.

Unless you, as the employer, where issued with a tax code by HMRC then tax code 0T should have been used and 20% tax deducted on the £700 you were paid.

My question is about whether this figure has any direct bearing on HMRC's figures about the employee (also me)?

I don't know why you think HMRC even know about this mistake? You (as the employer) do not send details of another companies earnings to HMRC, you just report what you have paid and any tax deducted. And lots of other stuff as well but not details from other employments, whether real or not. Have a look at the information from gov.uk below (with your employer hat on

https://www.gov.uk/guidance/what-payroll-information-to-report-to-hmrc#pay-and-deductions

payslip amount from my ltd company correctly not deducted any tax

Depends on where you, as the employer, got tax code 1185L from however providing you, the employee, declare the income on your Self Assessment return I guess HMRC are unlikely to be too bothered (in respect of you the employee).

My tax code was 1185L.

Did HMRC issue that to you as the employer? If not how did you, as the employer, decide that was the correct tax code when you don't have a signed starter declaration?

Isn't it obvious what I'd be writing to HMRC about?

Not to me it isn't. You appear to be confusing an error in your internal payroll data with information that is sent to HMRC. I don't know how HMRC would know about this other than you phoning them?

Dazed_and_confused · 10 November 2018 at 9:18PM

Pennywise

As far as the submissions to HMRC are concerned what data would the op be correcting?

Maybe I'm a bit out of the loop here from an employer perspective?

semma19 · 10 November 2018 at 9:50PM

I was sent the tax code 1185L from HMRC to use.

I think this is the confusion - what information would I be correcting? FreeAgent keep saying to submit 'corrected payslips' through Basic Tools, but the payslips are not the problem. I'm just tying to find out if entering an incorrect figure for the employee's previous earnings when I set up the payroll profile IS actually a problem! i.e. is this payroll profile information (info about employer's previous earnings) sent to HMRC?

With my employee hat on, is there a problem as well? In that a company set me up and 'reported' my previous earnings were x when they were y.

anselld · 10 November 2018 at 10:39PM

There is not a problem. It will be ironed out when you complete self assessment (if you submit the correct figures).

jimmo · 12 November 2018 at 12:29AM

When you do your self assessment for 2018/19 there will be a very obvious discrepancy between your self assessment and your company's payroll records. The HMRC computers will almost certainly pick this up and place both you and the company on their lists of potential Enquiries. Nobody can say for certain whether that will turn into an Enquiry or not but, unless you can correct your error, you will, most definitely be in the firing line.
Pennywise has said that Freeagent can't cope with your error (post#6). You therefore either need to get paid for software to correct your error or take your chances with HMRC.
You also said you left (the company) in October but stayed as a director. In tax terms that doesn't make sense because directors as treated as employees but did the company give you a P45 when you left? If so, how was the payroll discrepancy reflected in the P45?

Mistake with payroll and no-one can help

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