skip to navigationskip to main content

Call: 01869 222830

Paying PAYE – correctly!

I handle 20 or so monthly payrolls for my clients. The majority of my clients pay their PAYE on time each month and so there is no problem. However, a few of them regularly pay their PAYE late each month and then they wonder why HMRC keep sending them payment demands that bear no resemblance to reality. I’ll try and explain why this happens and how it can be avoided.

HMRC’s computer is not the cleverest computer in the world. If you make a payment of PAYE it will allocate the payment against the earliest “open” month even if you want the payment to go against a later month. You have to be very logical when dealing with HMRC.

To make HMRC’s computer allocate payments or part payments correctly, use the account reference number which you received when registering for PAYE plus four digits on the end which state the year and month being paid. The year is the calendar year in which the current tax year ends, so for April 2019 to March 2020, the year code will be 20. The month code is the month number from the start of the tax year, i.e. April is 01, May is 02, etc., up to March as 12.

Example: December 2018 reference: [Ref: 123AB45678910][Year:19][Month:09]

So the 16 character reference you would use is: 123AB456789101909

Note that because of the need to identify individual months you cannot make a payment covering more than one month. You need to break the payment down into individual months and use the correct 16 character reference. This will be different for each month. This does mean additional work, but it is worth it to allocate the payment(s) correctly.

If you need any further help on running your payroll, pleased contact us at 01869 222830 and we will be pleased to help you.

Sign up for our monthly newsletter here