Real Time Information errors: the 7 mistakes HMRC penalises


By John Thomas, Senior Accountant

Real Time Information changed payroll forever in 2013: every pay run must be reported to HMRC on or before payday through a Full Payment Submission, the FPS. Get it right and payroll is invisible. Get it wrong and penalties, notices, and employee tax-code chaos follow. Here are the seven RTI mistakes HMRC actually penalises, and how to prevent each one.

1. Filing the FPS late

The single most penalised RTI error. The FPS is due on or before the day you pay your employees, not after, and not "when payroll gets around to it". Late filing penalties apply per month, and they scale with the number of employees. Small employers get some leeway on their first default in a tax year, but repeated lateness is penalised automatically.

Prevention: lock a payroll calendar with hard internal deadlines two days before payday, and make sure someone owns the submission step explicitly. If you outsource payroll, confirm in writing that your provider files on or before pay date, and get the submission receipts.

2. Reporting the wrong pay date

Even when the FPS goes in on time, the wrong payment date on the submission causes trouble. HMRC allocates the pay to the wrong tax month, employees' tax codes behave strangely, and Universal Credit claimants can see their benefits disrupted. Paying early before Christmas is the classic trigger: the FPS must show the actual payment date, with the correct contractual pay date recorded where HMRC expects it.

Prevention: check the payment date field on every FPS against the actual BACS or bank payment date before submission.

3. Wrong starter declarations

New starters with the wrong starter code, or no starter declaration at all, land employees on the wrong tax code. The infamous emergency code 1257L W1 or M1 then under- or over-taxes them for months. The three starter statements (A, B, and C) exist for a reason: they tell HMRC which statement of the employee's tax position applies, and guessing is not a strategy.

Prevention: collect a completed starter checklist for every new employee before the first pay run, and never reuse a previous employee's settings as a shortcut.

4. Leavers not reported, or reported wrongly

Employees who leave but never get a leaving date on an FPS stay "live" on HMRC's record. They keep accumulating employment records, their personal tax account shows a job they no longer have, and your payroll keeps reporting them. The leaving date must go on the FPS for their final pay, and P45s must follow promptly.

Prevention: tie payroll to your leaver process. HR tells payroll the last working day in writing, and payroll confirms the FPS carries the leaving date before it is submitted.

5. Missed or late Employer Payment Summaries

The EPS claims things like the Employment Allowance, CIS deductions suffered, and recoverable statutory payments, and it tells HMRC when no payment is due for a month. A missed EPS means HMRC thinks you owe PAYE you do not, and the demands follow. The EPS is due by the 19th after the tax month ends.

Prevention: file an EPS for every month with a claim or a nil liability, and diary the deadline alongside the FPS rhythm.

6. Failing to correct errors properly

RTI mistakes cannot be quietly fixed in the next pay run. Corrections need the right mechanism: an additional FPS for the same period, a corrected year-to-date figure, or in some cases an Earlier Year Update after 19 April. Guessing the correction method produces mismatched year-to-date figures that HMRC's systems flag, and the reconciliation pain lands in April when nobody has time for it.

Prevention: as soon as an error is spotted, identify the correct correction route and file it promptly. Do not bury corrections inside unrelated submissions.

7. Directors and irregular pay handled carelessly

Director-only payrolls and irregular payment patterns are RTI minefields. Directors paid annually or irregularly still need FPS filings on or before each actual payment, and the annual scheme election must be made properly if you want to file once a year. Irregular paydays without a matching FPS pattern generate the same late-filing penalties as any other employer.

Prevention: if directors are paid irregularly, diary every payment for FPS filing, or elect properly for the annual scheme and stick to its rules.

Building a penalty-proof payroll routine

The thread through all seven mistakes is process, not knowledge. A small monthly checklist covers almost everything: FPS filed on or before pay date, payment dates verified, starters and leavers processed with correct codes, EPS filed where needed, and every submission receipt saved and filed.

Most payroll errors are not made by careless people; they are made by stretched people doing payroll alongside ten other jobs. That is why so many small businesses hand payroll to a specialist. With payroll outsourcing from Finex Outsourcing, RTI submissions, starter and leaver processing, EPS claims, and corrections are handled by a team that does nothing else, on a calendar that never slips. The cheapest payroll is the one HMRC never has to write to you about.


 

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