How to Prepare for the End of the Tax Year: Payroll Checklist
As the end of the tax year approaches, businesses across the UK must ensure that their payroll processes are in order. Proper preparation is essential to avoid costly mistakes, ensure compliance with HMRC regulations, and provide employees with accurate financial records. Whether you're a small business owner or managing a larger enterprise, this step-by-step guide will help you navigate the complexities of year-end payroll, keeping your business on track and your employees satisfied.
1. Mark Key Dates on Your Calendar
The end of the tax year in the UK is a critical time for businesses, and knowing the key dates is essential to avoid penalties and ensure timely submissions. Here are the most important dates to remember:
5th April: End of the current tax year.
6th April: Start of the new tax year.
19th April: Deadline for Employer Payment Summary (EPS) for the previous tax year. Deadline for paying any PAYE and NICs. Final date for amending an FPS, after that date a prior year FPS with year to date values is required.
31st May: Deadline to provide employees with their P60 forms.
6th June: The deadline to report employee expenses and benefits, and submit P11D and P11D(b) forms
6th July: Deadline to report expenses and benefits (P11D) to HMRC and provide employees with copies. If benefits are processed via payroll then there is no requirement for individual P11Ds, (P11Ds are potentially stopping from April 2026).
22nd July: Payment deadline for Class 1A National Insurance contributions on benefits in kind.
Importance of Timely Submissions:
HMRC Penalties: HMRC imposes penalties for late or incorrect payroll submissions. For instance, missing the deadline for filing the Full Payment Submission (FPS) can result in penalties ranging from £100 to £400 per month, depending on the size of your business. This highlights the financial risk of not meeting year-end deadlines.
2. Review Employee Information
Before finalising your year-end payroll, it’s crucial to review all employee information to ensure accuracy. This includes:
Personal Details: Verify that all employee names, addresses, and National Insurance numbers are correct.
Tax Codes: Ensure that the correct tax codes are applied for each employee. Incorrect tax codes can lead to overpayment or underpayment of taxes.
Pay and Benefits Records: Check that all salary, bonuses, and benefits have been accurately recorded throughout the year.
Updating any incorrect or outdated information will help avoid discrepancies in tax calculations and ensure that employees receive the correct documents at the end of the tax year.
Accuracy in Employee Data:
Error Rates in Payroll: A study by SD Worx found that 15% of UK businesses admitted to errors in their payroll processing. Errors at the end of the tax year can lead to significant issues with HMRC compliance and employee satisfaction, underscoring the need for careful review and preparation.
Tax Code Adjustments:
Tax Code Mistakes: According to HMRC, an estimated 2 million people in the UK may be on the wrong tax code, which can lead to incorrect tax deductions. Ensuring that all tax codes are up-to-date before the new tax year starts is crucial to avoid underpayment or overpayment of taxes.
Employee Satisfaction and Payroll Accuracy:
Impact on Employees: A report by Xero noted that 30% of UK employees stated they would be "extremely" dissatisfied if their payroll was inaccurate. This dissatisfaction can be particularly damaging at year-end when employees expect accurate final pay and tax summaries.
3. Process Final Payments and Submissions
As the tax year comes to a close, you must ensure that all payroll payments and submissions are up to date:
Final Full Payment Submission (FPS): Submit your final FPS to HMRC by the 19th of April. This submission should include all pay and deductions for the last pay period of the tax year.
Employer Payment Summary (EPS): If you need to adjust the amounts reported in your FPS (for example, if you've reclaimed statutory payments), you’ll need to submit an EPS.
Reconcile Payroll Records: Before making your final submission, reconcile your payroll records to ensure that all payments, deductions, and contributions have been correctly recorded.
4. Distribute Employee P60s
By 31st May, you must provide all employees who were on your payroll on the last day of the tax year with a P60 form. This form summarises their total pay and deductions for the year, including income tax and National Insurance contributions. P60s can be distributed either electronically or on paper, but they must be accurate and provided on time.
5. Prepare and Submit P11D Forms
If you are still producing P11Ds rather than processing via payroll, then you’ll need to complete and submit P11D forms to HMRC by 6th July. This form details the benefits and expenses provided to employees, such as company cars, health insurance, or travel expenses. You’ll also need to file a P11D(b) form to report the Class 1A National Insurance contributions due on these benefits.
P11D Reporting:
Benefits in Kind Reporting: Data from HMRC shows that over 4 million P11Ds are processed annually in the UK. Errors in P11D submissions can lead to penalties, so accuracy in reporting benefits in kind is essential during the year-end process.
6. Review and Update Payroll Processes for the New Tax Year
Once you’ve completed all year-end tasks, it’s time to prepare for the new tax year. This includes:
Update Tax Codes: Apply any new tax codes provided by HMRC for the upcoming tax year.
Adjust Payroll Software: Ensure that your payroll software is updated to reflect any changes in tax bands, National Insurance rates, or other payroll-related regulations.
Review Auto-Enrolment Contributions: Check if there are any changes to workplace pension contributions and ensure that these are implemented from the start of the new tax year.
7. Common Mistakes to Avoid
As you prepare for the end of the tax year, be mindful of these common mistakes:
Missing Submission Deadlines: Late submissions can result in fines from HMRC. Ensure all forms and payments are submitted on time.
Incorrect Tax Codes: Using outdated or incorrect tax codes can lead to significant errors in tax deductions.
Inaccurate Benefit Reporting: Failing to report employee benefits accurately can result in penalties and backdated tax demands.
Outsourcing Payroll to Reduce Errors:
o Outsourcing payroll functions has become an increasingly popular strategy among UK businesses aiming to enhance accuracy and ensure compliance with HMRC regulations. According to the Chartered Institute of Payroll Professionals (CIPP), 28% of organisations now utilise payroll service providers or bureaus, reflecting a significant shift towards external expertise in managing payroll processes.
o This trend underscores the growing recognition of the complexities involved in payroll management and the benefits of leveraging specialised services to mitigate errors and maintain regulatory adherence.
Conclusion
Preparing for the end of the tax year can be a complex and time-consuming process, but with careful planning and attention to detail, you can ensure a smooth transition into the new tax year. By following this checklist, you can avoid common pitfalls, remain compliant with HMRC regulations, and maintain the trust and satisfaction of your employees.
At Payroll Options we understand the challenges that businesses face during the year-end period. Our expert team is here to help you navigate this process with confidence, ensuring that your payroll is accurate, compliant, and stress-free. Contact us today to learn how we can support your business through the end of the tax year and beyond.