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Common PAYE problems and how to avoid them with payroll software

August 31, 2018

Everyone has seen PAYE on payslips; it’s the most widely-used system for paying income tax to HM Revenue & Customs (HMRC) in the UK and has been for years. Despite that, there are many problems frequently affecting the system, from human error to confusion surrounding expenses which occur without the use of payroll software.

What is PAYE?

PAYE is income tax which is deducted from your salary before you receive it. It’s called Pay As You Earn because the money is sent to HMRC by your employer ‘at source’ (i.e., before it reaches your account), It was introduced in 1944 to make collecting income tax from a rapidly-increasing number of workers easier and more efficient. The majority of taxpayers now pay using this system.

The alternative to the PAYE system of paying income tax is self-assessment. People who are self-employed, for example, complete their own tax return and pay tax once or twice a year.

Common PAYE problems

1. Benefits in kind

Any taxable expenses, or benefits in kind, must be included in tax returns for the relevant tax year, regardless of whether or not the tax has already been paid on those benefits under PAYE. This information must be given to employees by the employer before July 6th following the end of that tax year, and employers must also make a return to HMRC detailing any benefits given.

Problems often arise here as benefits such as company cars are not included on payslips and must be manually noted; human error can cause complication and failing to detail taxable expenses can result in hefty fines.

2. No P45

There’s plenty of reasons for not having a P45, P45U or P45ESA form; previously unemployed employees may not have one, they can be lost or simply not given to staff by previous employers. In the case of missing P45 forms, employers need to resubmit employee information to the tax office to decide on a new tax code, usually using a P46 form sent to HMRC on the first payday, to avoid incurring Emergency Tax.

3. Changes to income tax in the Budget

At the start of the tax year, the government’s Budget is released, detailing any changes to income tax. For tax codes ending in L, P or V, employers can make the adjustments automatically so they’re ready to be used in the next tax year; for PAYE tax codes ending in T or K, HMRC must calculate a new tax code.


Payroll software like MiraclePay, specifically designed for Microsoft Dynamics NAV, offer various ways to avoid the problems detailed above (and others). For example, MiracleP11D makes paying tax on employee benefits easy by recording and reporting on employee expenses, while MiracleEdocs takes the hassle out of complicated accounting documents by creating electronic payslips, saving you time and money.

Used by hundreds of companies to make payroll easier, MiraclePay increases efficiency and productivity whilst also reducing the time spent manually calculating payroll and boosting accuracy, minimising the impact of human error.

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