Under Real Time Information, every pay run is reported to HMRC on a Full Payment Submission (FPS) on or before payday. Once it is sent, the figures drive the employee’s tax record and your PAYE bill. Mistakes can be corrected, but corrections mean further submissions, confused employees and a bill that does not match what you expected to pay. The cheap moment to catch an error is the half hour before you press submit.
This page is the reconciliation routine. The submission mechanics are in the FPS submission checklist.
Before filing: four checks on every pay run
1. Compare with last period
Put this period’s payroll summary next to the last one, employee by employee, and explain every difference above a small tolerance.
| Employee | Last month gross | This month gross | Difference | Explanation |
|---|---|---|---|---|
| A. Jones | £2,800 | £2,800 | £0 | |
| B. Khan | £2,400 | £2,950 | £550 | 22 hours overtime, approved |
| C. Lee | £1,900 | £0 | −£1,900 | Left 14th; final pay processed last month |
| D. Okafor | — | £1,200 | +£1,200 | Starter, joined 18th |
If you cannot explain a difference, do not file until you can. Unexplained movements are where duplicated overtime, a missed leaver or a salary change keyed to the wrong person show up.
2. Starters and leavers
- Starters: starter information (or a P45) entered, tax code applied, student loan plan noted where relevant, pension enrolment assessed.
- Leavers: leaving date entered so the FPS reports it, final pay including holiday pay calculated, P45 produced.
A leaver who is not marked as left stays on your HMRC record and may receive payments in error next month.
3. Tax codes and deductions
Check that any tax code notices received from HMRC since the last pay run have been applied, and that statutory payments (sick pay, maternity, paternity) and deductions such as student loan, attachment of earnings orders and salary sacrifice have the right amounts and start or stop dates.
4. Gross to net
For the payroll as a whole, prove that:
gross pay − employee tax − employee NIC − employee pension − other deductions = net pay
and that the net pay total equals the payment file you will send to the bank. Then check that employer NIC and employer pension look reasonable against last period. A total that does not tie is a sign of a manual adjustment that bypassed the payroll calculation.
After filing: tie it back to the ledger
Post the payroll journal
Post the journal from the payroll software’s summary, using the accounts set out in wages and salaries in the chart of accounts and payroll liabilities. Expenses go to gross wages, employer NIC and employer pension; liabilities go to net pay, PAYE and NIC, pension and other deductions.
Clear the net pay account
When the bank payment for wages goes out, it clears the net pay control account. After payday the account should be zero. A balance left behind means someone was paid a different amount than the payroll calculated, or a payment is still outstanding.
Reconcile the PAYE liability
At each month end, the PAYE and NIC liability in the ledger should equal what you owe HMRC for the tax month:
- PAYE, employee and employer NIC and student loan deductions from the FPS submissions for the tax month;
- minus any Employment Allowance claimed or statutory payment recoveries reported on the Employer Payment Summary (EPS);
- equals the amount due, which should match your HMRC online account.
Pay it by the deadline and the liability clears to zero. If the HMRC figure and your ledger differ, compare submission by submission; the usual causes are a late FPS, a missing EPS or a correction that was filed but not posted. The detailed comparison is covered in PAYE bill reconciliation.
Reconcile pensions
Compare the contributions in the payroll with the schedule submitted to your pension provider, and the provider’s collection with the pension liability in the ledger. Auto-enrolment errors are easiest to correct while they are still one period old.
Year end
At the end of the tax year, the sum of the twelve monthly reconciliations should agree with the final FPS year-to-date figures for each employee. If the monthly checks were done, this is a formality. If they were not, it is the point where several months of small differences have to be unpicked at once.