The Root Causes of Disputed Charges

HMRC use the RTI data from the FPS and the EPS to create a ‘charge’, i.e. the employer’s liability to pay the Accounts Office.  This is detailed in HMRC’s flowchart on their Website and we would urge employers to look at this and familiarise themselves with how HMRC calculate their liability for payment.  Very simply, the charge is created by taking the year-to-date values from FPSs with Payment Dates in the current Month and subtracting the year-to-date values of FPSs with Payment Dates in the previous Month.  This derived charge is then further reduced by the year-to-date values from the EPS sent in the current Month less the year-to-date values of the previous Month’s EPS.  Where there is a difference between HMRC’s calculation of the liability and the employer’s calculation, the result is a Disputed Charge – i.e. the two calculations do not result in the same figures.  If the employer pays less than HMRC’s calculation, this may result in a late payment penalty.

HMRC have been reviewing the common causes for these Disputed Charges and have asked us to communicate their findings.  We urge employers to review these common causes and, where appropriate, we include hyperlinks to relevant guidance on HMRC’s Website:

Duplicate Employments

When an employment is duplicated, for whatever reason, this leads to a record appearing twice on HMRC’s systems, thereby overstating the employer’s liability.  The most common reasons for duplicates are highlighted here and the reasons can be categorised under three headings:

1. Issues when an employee starts
2. Issues when an employee leaves, and
3. Issues when an employee changes Payroll ID

The Employer Payment Summary (EPS)

For the EPS to be attributed to the correct tax Month, it is essential that it is submitted in the EPS ‘Window’.  Not all employers are submitting within the relevant Window and / or employers are not submitting the EPS at all.

The amalgamation of the information from the FPS and the EPS are essential for HMRC to calculate the employer’s liability, therefore, Learn strongly advocates reading this information.

Incorrect Payments

A cause for Disputed Charges is, simply, the employer is not paying over what they are due to pay – see ‘Getting your payment to HMRC right’ and ‘PAYE / National Insurance payments and deadlines’.  This may be because of error or, as highlighted by HMRC, confusion where an employer operates a weekly payroll.  In some tax Months, the employer is liable to pay 4 weeks whilst in others they have a liability for 5 weeks.

Previous Employment Pay and Tax

HMRC found that some software is sending over P45 information on the FPS.  This information is not required on the submissions to HMRC and, where it is included, understandably, this inflates the employee’s record leading to a Disputed Charge.

Employers are urged to check the functionality of their software – whilst P45 information needs to be recorded in payroll software, such software must not send the information to HMRC.

Student Loans

HMRC found that some payroll software is not sending over Student Loan information on the FPS.  As a result, the employer is paying over the Loan deductions; however, these are values that HMRC is not expecting.  In essence, the employer appears to be overpaying HMRC.

Employers are urged to check the functionality of their software – if Student Loan deductions are made, they must be reported on the FPS.

‘Other’

HMRC advise that they continue to see instances that can be lumped together under ‘other’.  These may be, simply, that the employer is making a mistake or getting used to reporting in real time.  Regardless, it is worthwhile pointing out these issues that HMRC have found to be possible causes of Disputed Charges:

• redundancy pay included in taxable pay in error
• duplicate payroll was submitted under a different employer reference
• employee missing from submission
• employee not been ceased correctly in payroll, reporting continued
• some employees were freelance and should not have paid tax or NI
• NI deductions made in error
• employer didn’t realise they needed to pay the employer element of NICs
• NI missed off FPS
• Employer’s NI not included in FPS
• employee pay figures relate to a previous tax year
• change of payroll provider, both old and new providers submitted FPS
• employer pays employees 3 weeks in arrears but calculation of payments to HMRC didn’t take that into account
• erroneous employee on payroll
• payment to employees made early over the Christmas period, 2 months’ pay on one FPS
• employer forgot to tell payroll agent about a new employee

CommentIt is useful to have this information and know that this comes as a result of investigation of Disputed Charges by HMRC.  Human beings make mistakes; however, RTI makes these mistakes visible in real time with the result that the payment made to HMRC is not as they were expecting.  Mistakes can come as a result of not following guidance or, more likely, following guidance that is incomplete or confusing!  I think it is important to say that we all (payroll professionals, software providers and HMRC) have a part in ensuring the information that is sent to HMRC manifests itself in the payment that HMRC are expecting to be made. Although the above comments come as a result of HMRC’s extensive investigations into Disputed Charges, one wonders whether they do account for the massive discrepancies that we are hearing about.  Employers have a responsibility to check the Liabilities and Payments Viewer / Business Tax Dashboard to ensure that HMRC’s liabilities balances to the employer’s payments.  Of course, if there is an issue with the Dashboard itself or if the employer does believe that a Disputed Charge has arisen, they should contact the Employer Helpline in the first instance and ask for the dispute to be referred to the Disputed Charges Team.