The PAYE bill is what the employer pays HMRC each month: income tax, employee and employer National Insurance and student loan deductions, less any reductions claimed on the EPS. Three systems hold a version of that figure, and all three should agree:
- the payroll software, which calculated it;
- the nominal ledger, through the payroll journal;
- HMRC’s records, built from the FPS and EPS submissions, visible in the business tax account.
The payroll journal to the liability
The payroll journal credits the PAYE liability account with the full deductions and employer NIC for the period. Before reconciling with HMRC, check the journal itself against the payroll summary:
| Payroll summary line | Journal posting |
|---|---|
| Income tax deducted | credit PAYE and NIC payable |
| Employee NIC | credit PAYE and NIC payable |
| Employer NIC | debit employer’s NIC expense, credit PAYE and NIC payable |
| Student and postgraduate loan deductions | credit PAYE and NIC payable |
| Statutory pay recoverable and Employment Allowance (from EPS) | debit PAYE and NIC payable, credit the related cost |
A common gap: the journal posts the FPS figures but not the EPS reductions, so the ledger shows more owed than HMRC expects. The other is the reverse, where Employment Allowance is posted in the journal but was never claimed on an EPS.
The monthly reconciliation
For tax month 6 May to 5 June:
| Source | Amount |
|---|---|
| Payroll software: total due | £7,420 |
| Ledger: PAYE and NIC payable movement for the month | £7,420 |
| HMRC business tax account: amount due | £7,420 |
| Bank: payment by 22 June | £7,420 |
When all four agree, the liability account is cleared to nil by the payment. Keep the reconciliation with the month’s payroll file.
Finding differences
| Symptom | Likely cause |
|---|---|
| HMRC higher than payroll | an FPS sent twice, or an EPS rejected or not sent |
| HMRC lower than payroll | an FPS rejected, or sent under the wrong PAYE reference |
| Ledger higher than payroll | journal posted twice, or EPS reductions not journalled |
| Old balance left on the liability account | a late or short payment, or a payment allocated by HMRC to a different period |
Pay with the correct payment reference for the tax month (the accounts office reference plus the period code). Payments without it are allocated to the oldest debt, which makes the account look wrong for months.
Year-end check
At 5 April, the twelve monthly liabilities should equal the year-to-date totals on the final FPS. Any differences should be cleared before P60s go out, because corrections after the year end require an earlier-year update.
For the ledger accounts involved, see payroll liabilities in the chart of accounts; for journal construction, payroll journal entries.