Category: Articles

Overseas rental income disclosure can be relevant if you are UK resident and have not reported rent from property abroad. Paying tax in the country where the property sits does not automatically settle your UK tax position. This guide explains which records to check and when the Let Property Campaign might be suitable. And the Let Property Campaign extends to exactly this situation. Here’s how it works, and what makes overseas disclosures a little different from a straightforward UK-only case.

Do You Need to Declare Rent From a Property Abroad?

Whether rent from an overseas property is taxable in the UK depends first on your UK tax residence status and any relevant reliefs. UK residents are normally taxed on foreign income, including overseas rent, but residence cannot be determined by a simple day-count rule alone.

Does the Let Property Campaign Cover Overseas Property?

Yes. The Let Property Campaign is open to individual landlords with undeclared residential rental income from property in the UK or abroad. This means a UK resident with an undisclosed overseas rental property is generally eligible to use exactly the same voluntary disclosure route as someone with an undeclared UK buy-to-let, subject to the usual eligibility rules — the campaign is for individuals, not companies or trusts.

Avoiding Double Taxation

If tax has been paid overseas, Foreign Tax Credit Relief may be available against UK tax on the same income. The amount depends on the relevant double-taxation agreement and the tax involved; it may not remove the entire UK liability. Report the overseas income where required and retain evidence of foreign tax paid.

Why HMRC’s Reach Now Extends Well Beyond UK Borders

HMRC can receive information from overseas authorities under lawful information-sharing arrangements. This does not mean HMRC automatically receives every property or rental transaction. Rather than guessing what HMRC may know, check whether the income was correctly reported in the UK.

Let Property Campaign vs the Worldwide Disclosure Facility

HMRC can receive information from overseas authorities under lawful information-sharing arrangements. This does not mean HMRC automatically receives every property or rental transaction. Rather than guessing what HMRC may know, check whether the income was correctly reported in the UK. Our guide on the common mistakes people make using the Worldwide Disclosure Facility is worth reviewing if your situation extends beyond rental income alone — for example, if it also involves undeclared overseas investment income or foreign bank interest, where the WDF may be the more appropriate channel.

Why Penalties Can Be Higher for Overseas Non-Disclosure

Offshore tax errors can involve different legislation, behaviour assessments and penalties, depending on the tax year and circumstances. Do not assume the same penalty applies to every overseas-property case

How Many Years Do You Need to Go Back?

As with UK property, the look-back period depends on the reason for non-disclosure rather than simply how long the property has been let. Our guide on how many years you need to declare sets out the general framework, and the same principles apply to overseas property, though the practical process of gathering years of foreign records, converted into sterling, often takes longer to prepare than an equivalent UK disclosure.

What You’ll Need to Gather for an Overseas Property Disclosure

• Rental income received each year, converted to GBP using the correct exchange rate for each period
• Evidence of any local tax paid on the same rental income, to support a foreign tax credit claim
• Records of allowable expenses — many of the same categories apply as for UK property, such as agent fees, insurance, and repairs
• Details of the letting arrangement, including dates and any local property management or agency involved

What About Non-Residents Renting Out UK Property?

The reverse situation also applies. UK residents aren’t the only ones with cross-border obligations — non-residents renting out UK property have their own reporting requirements under the Non-Resident Landlord Scheme, and can also use the Let Property Campaign to correct historic undeclared UK rental income. Our guide on expat tax rules for non-resident landlords covers this side of the picture if it’s more relevant to your situation.

How Felix Accountants Can Help

Overseas disclosures involve extra layers most UK-only cases don’t — currency conversion, foreign tax credits, and sometimes limited or differently formatted local records. We help UK residents bring overseas rental property fully up to date through the Let Property Campaign, calculating what’s genuinely owed after accounting for tax already paid abroad, and managing the disclosure process with HMRC. See our full Let Property Campaign guide for the wider disclosure process this sits within.

Frequently Asked Questions

Do I need to declare rent from an overseas property if I’ve already paid tax on it abroad?

Offshore tax errors can involve different legislation, behaviour assessments and penalties, depending on the tax year and circumstances. Do not assume the same penalty applies to every overseas-property case

Can I use the Let Property Campaign for a property outside the UK?

Yes. The campaign covers undeclared residential rental income from property in the UK or abroad, provided you’re an individual landlord rather than a company or trust.

Is it riskier to leave overseas rental income undeclared than UK rental income?

In some respects yes. Penalties for uncorrected offshore non-compliance can be significantly higher than standard UK penalties, and international data-sharing has made overseas income increasingly visible to HMRC.

How does HMRC find out about rental income from a property abroad?

HMRC may receive certain overseas information through international arrangements. It is not possible to infer which data was obtained about an individual property without evidence. Accurate reporting and good records remain the safest starting point.

Should I use the Let Property Campaign or the Worldwide Disclosure Facility?

For most cases involving only undeclared rental income from residential property, the Let Property Campaign is usually the appropriate and more specialised route. The Worldwide Disclosure Facility tends to suit broader offshore income or asset disclosures.

How do I report overseas rental income on a UK tax return?

If you are UK resident and required to report foreign rental income, HMRC normally expects you to use the foreign section of your Self Assessment return. You should keep a schedule showing gross rent, expenses, any overseas tax paid and the figures translated into pounds sterling using an appropriate method for the year concerned. Keep the foreign tax assessment or payment evidence if you want to claim credit relief. The correct UK treatment can differ where you qualify for a special foreign income relief or your residence position changed during the period.

How do I report overseas rental income on a UK tax return?

If you are UK resident and required to report foreign rental income, HMRC normally expects you to use the foreign section of your Self Assessment return. You should keep a schedule showing gross rent, expenses, any overseas tax paid and the figures translated into pounds sterling using an appropriate method for the year concerned.

Keep the foreign tax assessment or payment evidence if you want to claim credit relief. The correct UK treatment can differ where you qualify for a special foreign income relief or your residence position changed during the period.

What if my overseas rental records are incomplete?

Missing overseas statements do not mean you should invent numbers or abandon a disclosure. First ask the foreign bank, local letting agent or managing company for statements covering the relevant years. Obtain tenancy agreements, rent receipts, invoices for maintenance and proof of any local tax paid. Create a separate annual schedule and document how each amount was translated into sterling. If older documents genuinely cannot be recovered, HMRC’s Let Property Campaign guidance allows you to explain how reasonable estimates were reached and may ask to see your workings. Do not apply a standard expense percentage without a genuine basis.

One of the most common questions from new company directors is deceptively simple: what can I actually claim back from my own company? The underlying rule is straightforward in principle — expenses must be incurred “wholly and exclusively” for business purposes — but applying it in practice, especially where personal and business use overlap, is where most of the genuine complexity lives.

The “Wholly and Exclusively” Rule

For a cost to be deductible against company profits (reducing Corporation Tax) and reimbursable to a director without creating a personal tax charge, it generally needs to have been incurred wholly and exclusively for the purposes of the company’s trade. Costs with any significant personal benefit or dual purpose need much more careful treatment, and some can’t be claimed as a straightforward business expense at all, even if there’s a genuine business element involved. Our full guide on allowable limited company expenses covers the general framework this sits within.

Straightforward Reimbursable Expenses

These generally cause few complications, as long as they’re genuinely business-related:

• Travel costs for business journeys (excluding ordinary commuting to a permanent workplace)
• Business mileage, using HMRC’s approved mileage rates when using a personal vehicle for company business
• Accommodation and subsistence costs while travelling for business
• Professional subscriptions and memberships relevant to the trade
• Office supplies, software subscriptions, and equipment used for the business
• Business insurance premiums
• Training costs directly relevant to the role, in most circumstances

Our guide on claiming business mileage from your own company covers the specific approved mileage rates and record-keeping needed to support this particular claim.

Working From Home

Directors working from home can generally claim a modest, flat-rate contribution toward household costs, or a more detailed calculation based on actual additional costs (such as extra heating and electricity) attributable to business use of part of the home, provided it’s calculated on a reasonable, defensible basis rather than an arbitrary figure.

Company Cars: A More Complicated Area

Company cars are one of the most commonly misunderstood areas of director expenses. If a company provides a car that’s available for the director’s personal use (not just business use), this generally creates a taxable “benefit in kind,” reported on a P11D, with the director paying Income Tax on the benefit and the company paying Class 1A National Insurance. The tax cost of this varies significantly depending on the car’s list price and CO2 emissions, which is why fully electric or low-emission vehicles are often considerably more tax-efficient as a company car than a typical petrol or diesel model. Our guide on running your car in a tax-effective way covers this comparison in more detail, including when using your own car and claiming mileage is more efficient than a company-provided vehicle.

Business Entertainment: Generally Not Deductible

This catches a lot of directors out. Client entertainment costs — taking a client to dinner, for example — are generally not deductible against Corporation Tax at all, even though they’re a genuine, arguably necessary business cost. This is a specific, long-standing exclusion in the tax rules, distinct from the general “wholly and exclusively” test that governs most other expenses. Staff entertainment, by contrast, can qualify for a specific annual exemption (subject to a per-head limit) for events such as a Christmas party, provided the conditions are met.

Home-to-Work Travel

Ordinary commuting between home and a permanent workplace generally isn’t a deductible business expense, regardless of the distance involved. This is one of the more counter-intuitive rules for new directors, particularly where a director works primarily from a home office but occasionally travels to a separate business premises — the specific facts of where the “permanent workplace” is considered to be can significantly affect what’s claimable.

Reimbursing Genuine Personal Expenditure With a Business Element

Where a cost has both a business and personal element — a broadband contract used for both work and personal browsing, for example — only the business proportion can generally be claimed, and it needs to be calculated on a reasonable, justifiable basis. Claiming the full cost of something with genuine dual use, rather than an apportioned business element, is a common area where directors inadvertently create a benefit in kind or an incorrect Corporation Tax deduction.

What Happens When Something Isn’t a Clean Business Expense?

Where a cost doesn’t meet the wholly-and-exclusively test, or has a personal benefit element, it typically falls into one of a few categories:

• Taxable benefit in kind: reported on a P11D, with Income Tax paid by the director and Class 1A National Insurance paid by the company
• Not deductible for Corporation Tax at all: some costs, like client entertainment, simply aren’t allowable regardless of how they’re reimbursed
• Treated as a dividend or salary: if a payment doesn’t fit any genuine expense category, it may need to be treated as personal income instead, with the corresponding tax treatment

Keeping the Right Records

Whatever the expense, clear supporting records matter — receipts, a note of the business purpose, and (for mixed-use costs) a documented basis for the apportionment. This protects both the Corporation Tax deduction and the director’s personal tax position if HMRC ever asks questions about a specific claim.

Pension Contributions: A Particularly Tax-Efficient Option

Separately from routine expense reimbursement, company pension contributions made directly on a director’s behalf are generally a deductible business expense for the company and don’t create a personal Income Tax or National Insurance charge for the director, making this one of the more tax-efficient ways to extract value from company profits. Our guide on using pension contributions for tax relief covers this in more detail.

How Felix Accountants Can Help

We help directors work out exactly what can be reimbursed cleanly, what needs to go through P11D reporting, and how to structure genuinely mixed-use costs correctly. See our wider business tax services for how this fits into your company’s broader Corporation Tax position.

Frequently Asked Questions

Can my company pay for my commute to the office?

Generally no. Ordinary commuting between home and a permanent workplace isn’t a deductible business expense, regardless of distance.

Can I claim client entertainment as a business expense?

No, client entertainment costs are generally not deductible for Corporation Tax purposes, even though they’re a genuine business activity.

What happens if my company provides me with a car I can use personally?

This generally creates a taxable benefit in kind, reported on a P11D, with Income Tax paid by you and Class 1A National Insurance paid by the company, based on the car’s list price and emissions.

Can I claim the full cost of my home broadband if I use it for work?

Only the business-use proportion is generally claimable, calculated on a reasonable, justifiable basis, rather than the full personal and business cost combined.

Is it better to have a company car or claim mileage using my own car?

It depends on the specific vehicle, its emissions, and how much personal use is involved — for many directors, using a personal car and claiming approved mileage rates is more tax-efficient than a company-provided car, particularly for higher-emission vehicles.

Not every invoice a VAT-registered business sends out is automatically a valid “VAT invoice” in HMRC’s eyes — and if it isn’t, your customer may not be able to reclaim the VAT they’ve paid you, which can quickly become an awkward conversation. Getting the format right isn’t complicated once you know the rules, but missing even one required field can cause real problems for your customer’s VAT recovery.

When Do You Need to Issue a VAT Invoice?

Once your business is VAT-registered, you must issue a compliant VAT invoice for every standard-rated, reduced-rated or zero-rated sale, regardless of your business structure. For B2B transactions between VAT-registered businesses, a full VAT invoice is generally expected as standard. For retail sales directly to consumers, you’re not always required to issue one automatically, but if a VAT-registered customer asks for one in order to reclaim input VAT, you’re required to provide it.

The Three Types of VAT Invoice

HMRC recognises three formats, and which applies depends on the value of the supply:

• Full VAT invoice: required for supplies where the total, including VAT, exceeds £250
• Simplified VAT invoice: permitted for supplies totalling £250 or less, including VAT
• Modified VAT invoice: used for certain retail supplies over £250, showing VAT-inclusive line amounts rather than net amounts, generally with the customer’s agreement

It’s worth flagging that the £250 threshold is VAT-inclusive, not the net figure — a gross total of £250.01 pushes you into full invoice territory, with no rounding tolerance.

What a Full VAT Invoice Must Include

A full VAT invoice needs to contain all of the following:

• A unique, sequential invoice number
• The date of issue and the tax point (the time of supply, which determines which VAT period the sale falls into)
• Your business name, address, and VAT registration number
• Your customer’s name and address
• A description of the goods or services supplied
• For each line item: the quantity, the unit price excluding VAT, the applicable VAT rate, and the amount payable excluding VAT
• The rate of any cash or early payment discount offered
• The total amount payable, excluding VAT
• The total amount of VAT charged, shown in sterling

If a single invoice covers items at more than one VAT rate — say, some standard-rated and some zero-rated goods — each rate needs to be shown separately, with its own net amount and VAT amount, rather than a single blended figure.

What a Simplified VAT Invoice Must Include

For supplies of £250 or less, a simplified invoice requires considerably fewer fields:

• Your business name, address, and VAT registration number
• The date (time) of supply
• A description of the goods or services
• The VAT rate charged per item
• The total amount payable, including VAT

Notably, a simplified invoice doesn’t need to show the customer’s name and address, or a separate net-of-VAT figure — this is why till receipts and hospitality bills, for smaller transactions, are usually valid VAT documents without the full level of detail. Exempt supplies shouldn’t be included on a simplified invoice alongside taxable ones.

What a Modified VAT Invoice Must Include

A modified invoice is used for larger retail supplies (over £250) where the retailer’s systems are set up to show VAT-inclusive amounts rather than net figures. It includes the same information as a full VAT invoice, but line items and totals are shown inclusive of VAT, alongside a clear statement of the total amount including VAT.

Common Reasons a VAT Invoice Gets Rejected

• Missing or incorrect VAT registration number
• Address details for either party incomplete or missing entirely
• VAT shown as a single blended figure where multiple rates actually applied
• No unique invoice number, or duplicated numbering across different periods
• The tax point date missing, or clearly inconsistent with when the supply actually took place

Any of these can give HMRC grounds to challenge input VAT recovery for the recipient, which is why it’s worth periodically checking your invoice template against the current requirements rather than assuming it’s still correct.

Invoice Numbering

Every VAT invoice needs a unique, sequential number. If you restart your numbering each calendar year without a distinguishing prefix, you risk creating duplicate invoice numbers across different years, which can cause confusion in your own records as well as HMRC’s. Using a consistent prefix (such as the year, or a customer reference) alongside a running sequence avoids this problem.

Documents That Are Not Valid VAT Invoices

It’s worth being clear that a pro-formal invoice, a statement of account, or a delivery note are not acceptable substitutes for a proper VAT invoice — HMRC doesn’t accept these as valid evidence for reclaiming input VAT, regardless of how much detail they contain. If you’re issuing a pro-formal ahead of a formal invoice, make sure it’s clearly labelled as such and followed up with a genuine VAT invoice once payment terms are agreed.

Timing: When Must You Issue the Invoice?

VAT invoices generally need to be issued within 30 days of the time of supply (the tax point), which is usually the earlier of the date goods or services were provided, or the date payment was received, subject to specific rules for certain types of supply.

VAT Invoices and Making Tax Digital

Regardless of invoice format, VAT-registered businesses need to keep digital records of their sales and purchases under Making Tax Digital, with invoice data typically flowing into MTD-compatible accounting software rather than being tracked manually alongside a separate digital record.

What If You’re Selling Property or Involved in Property Development?

VAT treatment for property transactions has its own additional complexities on top of the standard invoicing rules described here, particularly around whether a supply is standard-rated, zero-rated, or exempt. Our guides on VAT and property in the UK and VAT implications for property developers and investors cover this in more detail if your invoicing involves property transactions specifically.

How Felix Accountants Can Help

We help VAT-registered businesses review and correct their invoice templates, make sure the right format is used for the right transaction value, and set up systems that keep invoicing compliant as your business grows. See our wider taxation services for how accurate VAT invoicing fits into your broader compliance position.

Frequently Asked Questions

What’s the difference between a full and simplified VAT invoice?

A full VAT invoice is required for supplies over £250 (including VAT) and needs the customer’s details plus a full breakdown of net, VAT, and total amounts. A simplified invoice, for £250 or less, needs fewer fields and doesn’t require the customer’s name and address.

Do I need to issue a VAT invoice for every sale?

You must for B2B transactions with other VAT-registered businesses. For retail sales to consumers, it’s not always automatic, but you must provide one if a VAT-registered customer asks for it.

Can I use a pro-formal invoice to reclaim VAT?

No. HMRC doesn’t accept pro-formal invoices, statements, or delivery notes as valid VAT invoices for reclaiming input tax.

What happens if my VAT invoice is missing required information?

HMRC can refuse the recipient’s input VAT recovery if the invoice doesn’t meet the required format, so it’s worth checking your templates carefully against the current requirements.

How soon after a sale must I issue a VAT invoice?

Generally within 30 days of the time of supply (the tax point), which is usually the earlier of the goods/services being provided or payment being received.

Plenty of people today have income from more than one place — a full-time job plus some freelance work on the side, a rental property alongside a business, or dividends from a small investment portfolio layered on top of a salary. The good news is that all of this generally goes on a single Self Assessment return, using different supplementary pages for each type of income. The key is making sure every source is captured correctly and nothing falls through the gaps.

Why Multiple Income Sources Still Mean One Return

A common misconception is that different income types need entirely separate tax returns. In reality, a single Self Assessment return covers your entire tax position for the year, built up from a main return plus a series of “supplementary pages” specific to each type of income you have. Your overall tax liability is then calculated on your total income across all sources, taking into account your personal allowance and the tax bands that apply as your combined income rises.

Employment Income (Already Taxed Through PAYE)

If you’re employed, your salary is generally already taxed at source through PAYE, but it still needs to be reported on your Self Assessment return if you’re required to file one for another reason — for example, because of rental or self-employment income. This isn’t double taxation; it’s simply reporting the full picture so HMRC can calculate your overall position correctly, including whether your combined income pushes you into a higher tax band or affects things like the personal allowance taper for high earners.

Self-Employment or Freelance Income

Self-employment income, including freelance and side-hustle earnings, is reported on the self-employment supplementary pages, where you declare your total income and deduct allowable business expenses to arrive at your taxable profit. Our guide on allowable self-employed expenses covers what can be claimed here, and our article on how tax actually works for a side hustle is a useful starting point if this is a newer income source for you.

Rental Income

Rental income from UK property goes on its own dedicated property income pages, separate from employment or self-employment income, with its own set of allowable expenses and its own rules — including the restricted mortgage interest relief that applies to individually owned residential lettings. Our guide to filing taxes as a landlord covers this specific supplementary page in more depth.

Dividend and Investment Income

Dividends, whether from a personal share portfolio or from your own limited company, are reported separately from other income and benefit from their own tax-free dividend allowance before the applicable dividend tax rates apply. Interest from savings similarly has its own reporting section and its own personal savings allowance, which varies depending on your overall tax band.

Partnership Income

If you’re a partner in a business partnership, your share of the partnership’s profit is reported on its own supplementary page, separate from any personal self-employment income you might also have outside the partnership. Our guide on understanding partnership agreements covers how partnership profit-sharing typically works, which feeds directly into what each partner needs to report individually.

Income From Outside IR35 Contracting

If some of your income comes from contracting work, it’s worth being clear on whether IR35 (off-payroll working rules) applies to that engagement, since this affects whether the income is treated as employment income (with tax already deducted by the fee-payer) or self-employment income reported and taxed through your own return. Our guide on understanding IR35 and off-payroll working rules explains this distinction, which matters for correctly categorising this type of income on your return.

Making Sure Your Personal Allowance Is Applied Correctly

With multiple income sources, particularly where some income is taxed at source (like PAYE salary) and some isn’t (like rental or self-employment profit), it’s worth checking that your personal allowance and tax bands are being applied sensibly across your total income, rather than assuming each income source is taxed in isolation. Our guide on maximising your personal tax-free allowance covers how this works in practice, including the taper that reduces the personal allowance for higher earners.

A Practical Checklist Before You File

• Have you included every income source, even smaller or occasional ones?
• Have you selected the correct supplementary pages for each income type?
• Have you double-checked which expenses relate to which income source, rather than mixing them together?
• Have you accounted for any income already taxed at source, so it isn’t accidentally taxed twice?
• Have you checked whether your combined income affects other allowances, such as the Child Benefit high income charge or the personal allowance taper?

Why Errors Are More Common With Multiple Income Sources

The more income sources involved, the easier it is for something to be missed, double-counted, or reported in the wrong section — particularly where income arrives through different channels (bank transfers, platform payments, letting agent statements) and isn’t consolidated until tax return time. Our guide on understanding the UK tax year and key deadlines is a useful companion for planning ahead, particularly if you’re juggling records from several sources throughout the year rather than gathering them all at once in January.

How Felix Accountants Can Help

We regularly prepare Self Assessment returns for people with several income sources, making sure everything is captured on the right supplementary pages, allowable expenses are correctly matched to the right income type, and your overall tax position is calculated accurately across the full picture — rather than treating each income source in isolation.

Frequently Asked Questions

Do I need a separate tax return for each type of income I have?

No. A single Self Assessment return covers all your income for the year, using different supplementary pages for each income type, such as employment, self-employment, property, and dividends.

Do I need to report my salary if it’s already taxed through PAYE?

Yes, if you’re required to file a Self Assessment return for another reason, your PAYE income still needs to be included so HMRC can calculate your total tax position correctly.

Can rental income and self-employment expenses be mixed together on the same page?

No. Each income type has its own supplementary pages and its own specific allowable expenses, and mixing them together can lead to an incorrect calculation.

Does having multiple income sources increase my chance of an HMRC enquiry?

Not inherently, but more income sources do increase the chance of an accidental omission or misreporting, so it’s worth taking extra care to ensure everything is captured correctly.

What happens if I forget to include one of my income sources?

You can correct this by amending your return, generally within 12 months of the filing deadline, or through a formal correction process if more time has passed.

Even with the best payroll software, mistakes happen — a wrong tax code, a miscalculated overtime payment, an employee accidentally paid twice, or figures reported incorrectly to HMRC through Real Time Information. The good news is that HMRC has a well-established process for correcting payroll errors, and how you fix it depends mainly on when the mistake is discovered and whether it affected the employee’s pay, the figures reported to HMRC, or both.

Step 1: Identify Exactly What Went Wrong

Before correcting anything, pin down the specific nature of the error:

• Pay or deduction error: the employee was paid the wrong gross amount, or Income Tax/National Insurance was calculated incorrectly
• Reporting error: the employee was paid correctly, but the Full Payment Submission (FPS) sent to HMRC contained the wrong figures
• Payment date error: the wrong payment date was recorded, misaligned the payment with the incorrect tax period
• Employee information error: incorrect start or leaving dates, National Insurance category, or personal details

Compare the current period’s figures against year-to-date totals in your payroll software or submission log to confirm exactly where the discrepancy lies before making any correction.

Correcting the Figures Reported to HMRC

You cannot “reverse out” an FPS once it’s been submitted — instead, corrections are made by reporting the correct year-to-date figures going forward:

• If discovered within the same tax year: simply include the corrected year-to-date figures in your next regular FPS. There’s no need to resubmit each individual period separately; the correction flows through as an adjustment to the running total.
• If discovered shortly after the tax year ends (broadly, up to 19 April): you can generally still submit an additional FPS with corrected year-to-date figures as at 5 April for the previous tax year.
• If discovered later, after the final submission deadline has passed: a correction for an earlier tax year is generally still possible, but the process depends on your payroll software and how far back the correction relates — this is worth checking with your payroll provider or accountant, since the mechanism has changed in recent years and older correction methods (such as the Earlier Year Update) are being phased out for more recent tax years.

Correcting a payment date specifically follows a slightly different approach — an additional FPS with the correct payment date, marked with the appropriate late reporting reason, is generally the right route.

Will You Be Penalised for a Payroll Error?

Not automatically. HMRC has confirmed that a penalty only applies where the employer failed to take reasonable care or acted deliberately — a genuine, promptly corrected mistake generally doesn’t attract a penalty on its own. This is a similar principle to the behaviour-based penalty framework used elsewhere in the tax system, and it’s another reason to correct errors as soon as they’re identified rather than leaving them unaddressed.

If You Underpaid an Employee

Once the correct figures are established, the shortfall generally needs to be paid to the employee as soon as practicable, alongside the corrected PAYE reporting. Underpaying employees, even accidentally, can create separate employment law issues if it results in pay falling below the National Minimum or Living Wage for the hours worked, so it’s worth checking this specifically where an underpayment has occurred, not just correcting the PAYE figures.

If You Overpaid an Employee

Recovering an over-payment from an employee is more sensitive than it might first appear. While employers generally have the right to recover a genuine over-payment, doing so requires careful handling:

• Communicate clearly and promptly with the employee about the error and the proposed recovery
• Have a documented policy, or agree a reasonable repayment arrangement, particularly for larger amounts, rather than deducting the full sum from a single payslip without warning
• Be cautious about reducing a single deduction to the point where it takes pay below the National Minimum Wage for that pay period
• Keep clear records of the error, the amount, and how it was recovered, in case questions arise later

Unilaterally deducting a large over-payment without any communication can create genuine employment relations problems, even where the employer is technically entitled to recover the money.

Correcting Employer Payments to HMRC

A common misconception is that correcting an earlier period’s FPS changes what was owed to HMRC for that earlier period. In practice, corrections to previously reported figures typically adjust the payment due for the period in which the correction itself is submitted, not the original period — so if you correct a Month 3 error in Month 6, the adjustment generally shows up in your Month 6 liability to HMRC, rather than reopening the Month 3 payment.

What If HMRC’s Records Still Show the Wrong Figures?

If you’ve checked that the correct information was submitted via your RTI returns but HMRC’s own systems still show something different, this points to an error on HMRC’s end rather than in your submissions. In this situation, you can use HMRC’s dedicated service to query and correct an employer PAYE bill discrepancy, rather than resubmitting figures you’ve already confirmed are correct.

Preventing Payroll Errors Going Forward

A few habits significantly reduce the risk of recurring payroll errors:

• Reconciling payroll reports against bank payments each pay period, not just at year end
• Double-checking tax codes when HMRC issues updated notices, rather than assuming they’re correct
• Using payroll software that clearly flags year-to-date discrepancies before submission
• Reviewing new employee starter information carefully, since incorrect starter declarations are a common source of tax code errors

See our guide on small business payroll explained for a broader introduction to running payroll correctly from the outset.

How Felix Accountants Can Help

We help small employers correct payroll errors quickly and properly, handle the sensitive process of recovering over-payments from employees, and set up ongoing payroll processes that reduce the chance of errors recurring. Our payroll services can also take this off your hands entirely, running your payroll and managing HMRC reporting on your behalf.

Frequently Asked Questions

Can I fix a payroll error from an earlier pay period myself?

Yes, in most cases you correct it by including the updated year-to-date figures in your next regular FPS, rather than resubmitting the earlier period separately.

Will HMRC fine me for a genuine payroll mistake?

Not automatically. Penalties generally only apply where reasonable care wasn’t taken or the error was deliberate — a promptly corrected genuine mistake usually doesn’t attract a penalty.

Can I deduct an over-payment from an employee’s next payslip without telling them?

It’s strongly advisable not to. While employers generally have the right to recover a genuine over-payment, doing so without clear communication can create employment relations issues, and deductions shouldn’t reduce pay below the National Minimum Wage for that period.

Does correcting an old payroll error reopen what I owed HMRC for that earlier period?

Generally no. Corrections to earlier periods typically adjust the payment due for the period in which the correction is submitted, rather than reopening the original month or quarter’s liability.

What should I do if HMRC’s records don’t match what I submitted?

If you’ve confirmed the correct figures were submitted via RTI, this usually indicates an error on HMRC’s end, and you can use HMRC’s dedicated service to query and resolve the discrepancy.