How to recover overpaid PAYE

HMRC won’t refund overpaid PAYE

HMRC usually takes a very harsh line in relation to refunding overpaid PAYE. Its view is that if an amount has been paid over, it must be due. HMRC is incredibly reluctant to accept that people make mistakes or that the overpayment has arisen for a genuine reason. Many businesses have received letters from HMRC refusing to repay overpaid PAYE or credit it against current year liabilities until they provide it with a full explanation of how this overpayment came about.

HMRC’s system will make adjustments to cancel overpayments if the amounts overpaid are small.

When and how much?

Current year. If the refund relates to the current tax year and you have further PAYE/NI payments to make, then the simplest way to recover the money you’re owed is to simply knock it off your next PAYE/NI payment.

Prior year. If the refund relates to the previous tax year or if it’s too large to be recovered by reducing the payments due for the remainder of the tax year, it can be trickier to get your money back.

£500 or less. According to HMRC’s guidance, if the overpayment is less than £500 then it’s unlikely to argue. Call HMRC’s employer helpline (0300 200 3200) and ask for the money to be refunded.

More than £500. If it’s more than £500, you will need to write to HMRC and provide a satisfactory explanation as to why the overpayment arose. Even after HMRC has agreed, you may be in for a long wait.

What’s a satisfactory explanation?

Simply telling HMRC that a member of staff made a mistake, even if that is what happened, may not be a sufficient explanation. HMRC is likely to write back asking for more details as to the circumstances surrounding the overpayment before parting with the cash.

HMRC’s guidance includes examples of possible reasons why an overpayment might occur, which might help you formulate your explanation and secure your refund with the minimum of trouble. It also includes information about the process of making a claim.

When making a PAYE overpayment claim provide HMRC with a spreadsheet which shows: amounts due for PAYE/NI each month in column A; amounts paid by the client in column B; and an explanation of any difference in column C. For example, if you have paid twice in one month, the corresponding row in column C could state “Unfortunately the bookkeeper was on holiday abroad and the director assumed it hadn’t been paid after seeing a reminder from HMRC and paid it again” . Or if you have simply paid the wrong amount it could say, “Due to human error in typing the figures into their online banking system, we paid £Y instead of £X” .