How to make a payroll correction for a previous tax year
Please note that FreeAgent's payroll functionality won't be available if you have an unincorporated landlord account or if you're preparing your accounts using cash basis accounting.
For tax years up to and including 2019/20, employers could use an Earlier Year Update (EYU) to make amendments to their payroll submissions, outside of FreeAgent. However, from the 2020/21 tax year (the tax year ending 5th April 2021) onwards, any amendments or late submissions will need to be made within six years using a further 'Year to date (YTD) Full Payment Submission (FPS)'.
The option to make a correction for a previous tax year in FreeAgent will only be available after 19th April of the following tax year once you’ve filed, or marked as filed, month 12 payroll for the tax year in question and if there are no account locks in place dated after the month 12 payslip. Please note that you can't edit payslips that are dated in a locked period.
To make corrections for a change that happened mid-tax year, such as a tax code amendment, you’ll need to edit each impacted payslip individually. You can only edit a payslip in a previous tax year if you have full (level 8) access to your FreeAgent account.
If changes are required to multiple payslips in different months, you would report all of the changes to HMRC together in one submission. To do this, select 'Save changes' after each individual correction until the final amendment has been made, and then report the corrections to HMRC. This is because the changes are reported to HMRC in a 'Year to date (YTD) Full Payment Submission (FPS)' which submits updated month 12 year to date figures, rather than specific changes for each of the individual months.
We also recommend that you save a copy of all the employee’s payslips before editing the figures as it won’t be possible to undo the changes or view the original figures in FreeAgent once they’ve been updated. Please note that edits to earlier payslips will cause later payslips to be recalculated and could cause the Income Tax and National Insurance deductions to change.
If you claimed Employment Allowance for the tax year you are correcting and then changed to 'Don't Claim' the following year, or vice versa, please ensure that your payroll settings have this enabled before submitting a correction. After submitting your correction, please remember to change your settings back so these are correct for the current year.
FreeAgent currently supports the filing of an FPS correction but not an EPS (Employer Payment Summary) correction for a previous tax year. Therefore, it won’t be possible to:
- edit any of the statutory pay fields on a payslip for a previous tax year.
- submit your bank details to HMRC. Instead, you’ll need to contact HMRC directly for refunds, otherwise HMRC will offset the refund against your PAYE account.
- make changes to your employment allowance status.
- report missed or updated CIS deductions for a previous tax year.
Making a payroll correction for a previous tax year
1. Navigate to the relevant pay period
Begin by navigating to the ‘Payroll’ screen in FreeAgent and selecting the relevant tax year from the drop-down menu.
Select ‘Make corrections’ in the top-right to unlock the payslips for that tax year.
Select the relevant payroll month from the drop-down menu.
2. Edit the payslip
To view a particular employee’s payslip for that month, choose ‘View Payslip’ next to the employee’s name.
Select ‘Edit’ to the right of the payslip to edit an employee’s payslip.
We strongly recommend that you save a copy of all the employee’s payslips before editing the figures as it won’t be possible to undo the changes or view the original figures in FreeAgent once they’ve been updated. Edits to earlier payslips will cause later payslips to be recalculated and could cause the Income Tax and National Insurance deductions to change. You can export the figures on each payslip by using the Export All Data feature.
Please note that it’s not possible to edit any of the statutory pay fields on a payslip in a previous tax year.
If all the payslips are changed to a nil value, FreeAgent will still submit an FPS and the year to date figures will be updated with HMRC.
Make the necessary changes and select ‘Save and report corrections’ at the bottom of the screen if this is the only payslip you need to correct. If you need to edit additional payslips, for example for a change that happened during the tax year that impacts multiple payslips, select ‘Save changes’ and repeat this process for each payslip you need to correct.
3. Report the corrections to HMRC
Once all the relevant payslips have been updated, select ‘Report corrections’ in the top-right.
Check that the updated year-to-date figures are correct.
If you need to make further changes, select ‘Return to Payroll Overview’ and make the necessary changes.
Once you’ve made the necessary corrections, select ‘Run and report corrections’.
Please note that if you or your accountant file payroll outside of FreeAgent, you can mark payroll as filed in FreeAgent without making an FPS corrections submission to HMRC by ticking the ‘Don’t report corrections to HMRC’ checkbox.
Next, enter your Government Gateway credentials in the pop-up window and select ‘Report payroll corrections’ to complete the process.
In accordance with HMRC guidance, FreeAgent will then submit your corrections to HMRC by sending an additional FPS with the correct year-to-date figures and set ‘H - correction to earlier submission’ as the ‘Late reporting reason’ field.
We strongly recommend that you save a copy of the IR mark from your submission to HMRC before making any additional corrections, as it will be lost.