1. Using the Wrong Tax Code
Using an incorrect tax code is one of the most common payroll errors.Tax codes tell payroll software how much Income Tax should generally be deducted from an employee's earnings.
Problems can arise when:
- A new employee's information is entered incorrectly
- A P45 is not processed properly
- An updated HMRC tax code is overlooked
- An employee is placed on the wrong starter declaration
- Payroll records are not updated following an HMRC notice
For the 2026/27 tax year, HMRC states that employers must identify and use the appropriate tax code for employees when preparing payroll records.Using the wrong code can result in an employee paying too much or too little tax. This often leads to additional queries from employees and extra payroll administration.
2. Incorrectly Setting Up New Employees
New starters require careful payroll processing.Where an employee provides a P45, employers need to use the relevant information when adding them to payroll.If a P45 is unavailable, the employee may need to complete HMRC's starter checklist.
The checklist helps determine:
- Which tax code should initially be used
- Whether the employee has another job
- Whether they have received certain benefits
- Whether Student Loan deductions may apply
- Whether Postgraduate Loan deductions may apply
HMRC warns that incorrect information can result in too much or too little tax being deducted.One of the common mistakes to avoid when setting up payroll is therefore adding an employee with incomplete information simply to process their first salary quickly.Collect the required payroll information before the first payroll run wherever possible.
3. Missing the FPS Deadline
Employers generally need to submit a Full Payment Submission, or FPS, every time employees are paid.
The FPS reports information including:
- Employee pay
- PAYE deductions
- National Insurance information
- Starter information
- Leaver information
- Other payroll details
HMRC normally requires the FPS on or before the employee's payday.Missing this deadline is one of the more serious common payroll mistakes small businesses can make.Late submissions can result in warnings or penalties. HMRC states that penalties can apply where an FPS is late or where an expected FPS or EPS has not been submitted.
Employers should therefore build FPS submission into the payroll process rather than treating it as a task to complete later.
4. Entering the Wrong Payment Date
The payment date recorded on the FPS matters.HMRC generally expects employers to enter their usual employee payment date.For example, if employees are normally paid on the 30th but receive their money slightly earlier because the 30th falls on a bank holiday, the normal contractual payday should generally still be reported.
Entering an incorrect date can make payroll records difficult to reconcile and, in some circumstances, can make a submission appear late.Businesses should check the payroll date carefully before sending the FPS.
5. Making Incorrect National Insurance Calculations
National Insurance is another area where payroll errors can occur.Employers need to use the correct National Insurance category and calculate employee and employer contributions accurately. HMRC specifically identifies incorrect National Insurance category letters as one of the payroll errors employers may need to correct after submitting an FPS.
Errors can occur when:
- Employee circumstances change
- The wrong category is selected
- Payroll software contains outdated information
- Employee information is entered incorrectly
Even small recurring errors can become significant when they affect several employees over multiple payroll periods.
6. Overpaying or Underpaying Employees
Incorrect pay calculations can create immediate financial problems.
Overpayments may occur because of:
- Incorrect working hours
- Duplicate bonuses
- Overtime entered twice
- Failure to process unpaid leave
- Incorrect salary changes
- Leaving former employees on payroll
Underpayments can arise for similar reasons. Both situations create additional work because payroll records, employee payments and potentially HMRC submissions may need to be corrected.
HMRC allows employers to correct current-year pay and deduction errors through updated year-to-date figures on the appropriate FPS. A strong approval process before payroll is finalised can reduce these problems.
7. Forgetting to Remove Employees Who Leave
When an employee leaves, their departure must be reflected correctly in payroll. Employers should record the leaving date and complete the required payroll reporting. Forgetting to mark someone as a leaver may cause them to remain active within payroll software.
Potential consequences include:
- Accidental payments
- Incorrect payroll reports
- Inaccurate pension information
- Confusing HMRC records
- Additional year-end corrections
Payroll teams should maintain a clear starter and leaver process rather than relying on informal messages between managers and payroll staff.
8. Making Workplace Pension Errors
Automatic enrollment adds another layer of responsibility to payroll. Eligible staff generally need to be enrolled into a workplace pension scheme, and employers must make the required contributions. GOV.UK states that employers must automatically enrol eligible workers and make employer contributions when the relevant conditions are met.
Common pension payroll errors include:
- Failing to enrol an eligible employee
- Using incorrect earnings information
- Calculating contributions incorrectly
- Missing pension contribution payments
- Incorrectly processing opt-outs
- Failing to identify employees who become eligible later
The Pensions Regulator specifically identifies incorrect earnings thresholds, communication errors and contribution calculation issues among common employer mistakes. Pension errors can create both financial and compliance problems, making regular payroll checks particularly important.
9. Forgetting to Submit an EPS
Not every payroll reporting requirement involves an FPS. Employers may also need to submit an Employer Payment Summary, or EPS.
An EPS may be required where a business:
- Did not pay any employees during an entire tax month
- Is reclaiming eligible statutory payments
- Is claiming Employment Allowance
- Is reclaiming qualifying CIS deductions as a limited company
- Needs to report certain Apprenticeship Levy information
HMRC states that an EPS used to reduce the amount due should generally be submitted by the 19th of the following tax month. Failing to submit an EPS can result in the employer's HMRC account showing a higher liability than expected.
10. Paying HMRC Late
Processing payroll correctly does not complete an employer's responsibilities. The PAYE and National Insurance owed must also reach HMRC by the applicable deadline.
After payroll submissions have been made, employers can generally review what they owe through their HMRC account. For monthly electronic payments, the balance is usually due by the 22nd, or the 19th when paying by post.
Businesses should avoid waiting until the final day to arrange payment. Some payment methods require several working days to reach HMRC. Late payments can result in interest and potential penalties.
11. Failing to Check Payroll Before Submission
Many of the most common payroll mistakes can be identified before the payroll is finalised. Businesses should carry out a basic payroll review every pay period.
Check:
- Employee names and payroll IDs
- Salaries and hourly rates
- Hours worked
- Overtime
- Bonuses and commission
- Tax codes
- National Insurance categories
- Pension contributions
- Student Loan deductions
- New starters
- Employees leaving
- Payroll dates
- PAYE totals
Comparing the current payroll with the previous month can also highlight unexpected changes. For example, a significant increase in gross pay or National Insurance should be investigated before the FPS is submitted.
12. Not Correcting Payroll Errors Quickly
Discovering a payroll error does not necessarily mean the problem will disappear in the next payroll run. Employers should investigate and correct mistakes promptly.
HMRC states that payroll errors may involve:
- Pay and deductions
- Payment dates
- Starter or leaving dates
- Employee information
- National Insurance categories
- FPS information
- EPS information
For current-year pay and deduction errors, employers can generally update year-to-date figures through their next regular FPS. Keeping a record of corrections also provides a clearer audit trail.
How Can UK Employers Avoid Payroll Mistakes?
A reliable payroll process should include clear controls rather than depending on one person remembering every deadline.
UK employers can reduce payroll errors by:
- Collecting employee information before payroll cut-off dates
- Keeping tax codes and employee records updated
- Reviewing payroll before approval
- Checking starters and leavers every month
- Reconciling PAYE and National Insurance
- Reviewing pension contributions
- Submitting the FPS on or before payday
- Sending an EPS where required
- Checking HMRC submission confirmations
- Paying HMRC by the correct deadline
- Keeping accurate payroll records
Businesses should also keep payroll software updated so current tax rules and thresholds are applied correctly.
Get Help With Payroll for Your Business
The common payroll mistakes UK small businesses make often appear minor at first. However, repeated errors can lead to incorrect employee pay, inaccurate HMRC records, additional administration and avoidable costs.
As a business grows, payroll can also become more complicated as it adds employees, pension responsibilities, bonuses, statutory payments and other deductions.
At UAN, we support UK businesses with payroll processing, PAYE administration and HMRC reporting.
Professional payroll support can help your business calculate employee pay accurately, meet reporting deadlines and reduce the risk of costly payroll errors while allowing you to concentrate on running your business.