How to improve your Payroll Reporting process
How to Improve Your Payroll Reporting Process
Understanding Payroll Reporting in the UK
Improving your payroll reporting process is not just an administrative task—it is a legal requirement that carries real financial consequences for UK employers. Under the Pay as You Earn (PAYE) system, employers must report employee payments to HM Revenue & Customs (HMRC) every payday through Real-Time Information (RTI)submissions. RTI ensures that HMRC receives up-to-date information on employee pay, tax, and National Insurance contributions, replacing traditional end-of-year forms with ongoing reporting.
Even experienced payroll teams can struggle with RTI compliance, especially when staff changes, tax code updates, or statutory payments occur mid-year. Correct and timely reporting is essential to avoid penalties, maintain employee trust, and ensure accurate tax records.
Core Payroll Reporting Obligations
Real-Time Information Submissions
Every pay period requires an FPS (Full Payment Submission), which reports:
- Employee details: name, National Insurance number, and tax code
- Gross earnings for the period
- Deductions, including income tax, National Insurance contributions, and student loan repayments
- Statutory payments such as Statutory Sick Pay or Statutory Maternity Pay
These submissions must be made on or before the pay date, even if the employee earns below the Lower Earnings Limit. Employers who pay no staff in a particular month should submit an EPS (Employer Payment Summary) to report no payments and claim reliefs such as Employment Allowance where eligible.
Common Reporting Mistakes
From years of experience, common reporting errors include:
- Late or missing submissions, which can lead to penalties ranging from £100 to £400 per month, depending on employer size
- Incorrect tax or National Insurance calculations, often due to outdated tax codes or thresholds
- Poor employee data quality, such as incorrect names or National Insurance numbers, causes reconciliation issues and employee disputes
These errors are not merely administrative—they directly affect employee tax records, potentially resulting in underpaid or overpaid taxes, disputes, and HMRC enforcement actions.
Strengthening Data Quality
The first step to improving payroll reporting is ensuring accurate data from the outset. Payroll is only as reliable as the information it processes.
Accurate Employee Records
Ensure all employee records are precise:
- Verify National Insurance numbers
- Apply the correct tax codes, updated annually or when HMRC issues changes
- Record accurate employment start and end dates
Quarterly reconciliations against HR records are recommended to catch errors early rather than waiting until the year-end.
Standardised Onboarding and Updates
Whenever a new employee joins or existing circumstances change, implement a pre-payroll checklist. Include salary changes, pension enrolments, and statutory leave updates. This reduces errors in FPS submissions and avoids time-consuming corrections later.
Leveraging Payroll Software
Choosing HMRC-Recognised Software
All UK employers should use HMRC-recognised payroll software. Reliable systems automate:
- PAYE and Class 1 National Insurance calculations using current thresholds
- RTI submissions to HMRC directly
- Alerts for missing or inconsistent data
Integration with HR systems further reduces duplication and enhances reporting accuracy.
Real-World Example
A mid-sized logistics company I advised previously relied on manual calculations for each pay period. After moving to an integrated payroll solution, processing time was cut by 40%, errors due to tax code changes were eliminated, and submissions were consistently on time.
Enforcing Internal Controls
Establish Clear Payroll Schedules
Create an internal calendar specifying:
- Data cut-off dates for payroll changes
- Review windows for payroll approval
- Submission deadlines to HMRC before payday
This structured approach ensures accuracy and allows time for corrections.
Dual-Review Processes
For added security, have a second person review payroll figures before submission. Larger organisations should implement monthly quality assurance checks on employee records to detect systemic issues early.
Practical Payroll Calculation Example
Consider a weekly-paid employee:
- Gross pay: £600
- Tax code: 1257L
- Employee NIC: 8% on earnings above £123 per week (Primary Threshold)
- Employer NIC: 13.8% on earnings above £175 per week (Secondary Threshold)
Accurate payroll software calculates:
- Pay this period: £600
- Income tax: cumulative based on year-to-date earnings
- Employee NICs: applied correctly
- Employer NICs: recorded separately
An incorrect tax code, such as 1250L instead of 1257L, would misreport taxable pay to HMRC, affecting year-to-date totals and potentially causing employee disputes.
How to Improve Your Payroll Reporting Process
Advanced Controls to Strengthen Payroll Accuracy
Once foundational improvements are in place, advanced controls help minimise errors, ensure compliance, and reduce administrative effort.
Automated Reconciliation Checks
Regular reconciliations of payroll records against HMRC submissions are critical. Effective practices include:
- Monthly reconciliations of FPS submissions with accounting records
- Cross-checking National Insurance contributions and PAYE tax against payroll software outputs
- Verifying year-to-date totals for each employee to prevent cumulative errors
Advanced payroll systems often allow automatic reconciliation alerts, flagging anomalies such as duplicate entries or missing contributions.
Exception Reporting
Use exception reports to identify unusual patterns. For example:
- Employees with negative earnings or deductions
- Large spikes in bonuses or overtime
- Employees showing dual tax codes or sudden changes in the NI category
Proactively reviewing these exceptions ensures early error detection before submissions to HMRC.
Managing RTI Errors and Corrections
Even with careful processes, errors in Real-Time Information submissions can occur. Understanding how to handle them is essential.
Common RTI Errors
- Duplicate FPS submissions
- Incorrect or missing tax codes
- Incorrect statutory payment calculations
When these occur, the payroll team must act quickly:
- Identify the error type and affected employee(s)
- Correct the payroll record in the software
- Submit an amended FPS immediately to HMRC
Quick correction reduces the likelihood of penalties, incorrect employee tax records, and subsequent administrative burden.
Record of Amendments
Maintain a log of all amendments, including:
- Date of correction
- Reason for the error
- Impact on employee pay and HMRC reporting
This documentation is invaluable for internal audits and HMRC inspections, demonstrating proactive compliance.
Year-End Payroll Reporting
Year-end reporting remains an important milestone in payroll compliance. While RTI largely replaces old end-of-year returns, employers must still:
- Issue P60sto all employees by 31 May following the end of the tax year
- Complete P11D forms for employees receiving benefits or expenses
- Ensure EPS submissionsare updated if Employment Allowance or statutory payments affect year-end calculations
Accurate year-end reporting confirms all RTI submissions were correctly processed and supports smooth employee self-assessment.
Year-End Reconciliation Table Example
| 90% of average weekly earnings for the first 6 weeks, then £172.48/week | Threshold / Limit (2025/26) | Reporting Requirement |
| Lower Earnings Limit (Employee NI) | £123/week | Calculate employee NIC if above this limit |
| Secondary Threshold (Employer NI) | £175/week | Calculate employer NIC accordingly |
| Personal Allowance (Income Tax) | £12,570/year | Adjust PAYE tax code and deductions |
| Employment Allowance | £5,000/year | Apply to reduce employer NIC |
| Statutory Sick Pay (SSP) | £109.40/week | Include in RTI and FPS |
| Statutory Maternity Pay (SMP) | 90% of average weekly earnings for first 6 weeks, then £172.48/week | Include in RTI submissions |
This table illustrates key thresholds and reporting requirements for payroll teams, ensuring accurate year-end compliance.
Handling Statutory Payments
Statutory payments, including SSP, SMP, Statutory Paternity Pay (SPP), and Shared Parental Pay, require careful integration into payroll reporting.
Key Considerations
- Calculate the correct weekly rates based on earnings and qualifying periods
- Apply correct NIC adjustments: employees on statutory leave may still accrue NI differently
- Report accurately in FPS submissions and record for year-end reconciliation
For example, an employee on SMP for 10 weeks requires cumulative pay records and NIC adjustments to be accurately reported in each FPS submission. Payroll teams should review statutory payment reports monthly to prevent discrepancies.
Preparing for Audits and HMRC Inspections
Maintaining comprehensive records and demonstrating a robust payroll reporting process is crucial for HMRC audits.
Documentation Best Practices
- Retain employee master files, including NINOs, tax codes, and employment dates
- Keep FPS and EPS submission records for at least 3 years
- Maintain amendment logs for any payroll corrections
- Ensure pay slips and P60s are accurately archived
Auditors look for evidence of consistent compliance. By keeping organised, up-to-date records, employers can respond confidently and minimise scrutiny.
Internal Payroll Audits
Implement internal audit procedures:
- Quarterly reviews of payroll reports
- Sample employee checks for calculation accuracy
- Cross-reference statutory payments and HMRC submissions
Internal audits catch errors early and demonstrate proactive governance to HMRC.
Continuous Improvement Strategies
Staff Training and Knowledge Updates
Payroll regulations in the UK change annually. Training your payroll team ensures:
- Awareness of updated tax codes and NIC rates
- Understanding of new statutory payment thresholds
- Competence in using payroll software effectively
Practical workshops, scenario-based exercises, and a review of common error cases strengthen compliance culture.
Process Documentation
Document standard operating procedures (SOPs) for all payroll activities:
- Onboarding new employees
- Calculating pay and deductions
- Submitting RTI reports
- Handling errors and amendments
SOPs reduce reliance on individual knowledge and allow consistent processes across teams.
Leveraging Payroll Analytics
Use payroll data analytics to identify trends and improve processes:
- Monitor error rates and sources
- Track late submissions and their causes
- Analyse overtime, bonus, and statutory pay trends for budgeting and compliance
By converting payroll data into actionable insights, organisations can proactively address compliance risks.
Practical Case Scenario
A mid-sized UK retail business faced repeated RTI errors due to multiple tax code changes mid-year. By implementing:
- Automated payroll software linked to HMRC updates
- A dual-review process before each FPS submission
- Quarterly reconciliation audits
The business reduced RTI errors by 80% and eliminated penalties within a year. Staff morale improved as employees no longer faced tax underpayments or corrections.
Key Takeaways
- Advanced controls, exception reporting, and reconciliation checks prevent errors before they escalate.
- RTI errors must be corrected promptly with clear documentation.
- Year-end reporting requires attention to P60s, P11Ds, and EPS adjustments.
- Statutory payments must be calculated accurately for each employee and reported correctly.
- Regular training, SOP documentation, and analytics help continuously improve payroll processes and compliance readiness.
