Closing out the payroll year is crucial for businesses, ensuring compliance with HMRC regulations and smooth financial transitions. From updating employee records to submitting final reports, every step plays a vital role in avoiding penalties and preparing for the new tax year.
This comprehensive checklist simplifies the process, helping businesses stay organised, accurate, and compliant as they wrap up their payroll year-end. This comprehensive payroll year-end checklist provides a step-by-step guide, making it easy for businesses to manage their payroll correctly at the end of the tax year.
What is Payroll Year End?
Payroll Year-End is the process where payroll professionals and specialists finalise employees’ annual earnings, deductions, and net income for the tax year after they submit their final payroll. It involves preparing and submitting specific reports detailing a business’s financial operations regarding its employees.
A series of tasks need to be completed by specific dates, such as submitting your final Full Payment Submission (FPS) or Employer Payment Summary (EPS), distributing P60s to employees, updating tax codes for the new tax year, and reporting expenses and benefits via P11Ds.
Preparing for Payroll year-end
As the payroll year-end approaches, businesses must take several crucial steps to ensure everything is in order, including being aware of important dates and payroll year-end dates. Here’s how to prepare.
Determining Payroll Period End
The first step is determining when the payroll period ends based on your payment schedule. Often, businesses run weekly, fortnightly, or monthly payrolls. The end date of your payroll period has significant implications for your year-end processing and tax. Some may fall precisely on the 5th of April, while others might be a few days before or after. For those running a weekly payroll, the tax year may not comprise precisely 52 weeks, and in some cases, due to how the dates fall, particularly in a leap year, there might be an occurrence of Week 53. Understanding these nuances will help in accurate year-end payroll processing to run payroll effectively.
Update Employee Records
Keeping accurate and up-to-date employee records is essential under the Real Time Information (RTI) system. Businesses should take the time to review and validate all existing data, ensuring employees’ details are correct. This includes their full names, addresses, national insurance numbers, gender, and date of birth.
In addition to the basic details, businesses should also ensure the following information is updated:
| Information | Description |
|---|---|
| Start date | The date an employee started with the company |
| Leaving date & final pay | The date an employee left the company and their final salary |
| Gross pay to date | Year-to-date total earnings before deductions |
| Tax paid to date | Year-to-date total tax paid |
| Student loan deductions | Any student loan repayments made through payroll |
| Pension contributions | Year-to-date total pension contributions |
Ensuring these records are up-to-date can prevent inaccuracies in your end-of-year reports and unnecessary queries from HMRC or employees.
Check for New Starters and Leavers
Before submitting your final Full Payment Submission (FPS), you should thoroughly check for changes to your employee payroll records and workforce. Updating records of new hires and staff departures accurately forms an integral part of year-end payroll processing. In your final FPS, you’ll need to include all employees paid during the tax year, regardless of the amount, including those who joined or left your company after 6th April and before the end of that tax year. It is important to note that rectifying any inaccuracies after submitting your year-end reports to HMRC may prolong the process, therefore getting it right first time is vital.
Final Payroll Year End Tasks
Having completed the necessary preparation for payroll year-end, businesses must now focus on the final tasks critical to successfully closing the tax year. Here’s what you need to know.
Processing and Submitting Final Pay Run (FPS)
Your Full Payment Submission (FPS) is a record of all employee payments and deductions for the year. It communicates to HMRC about each employee’s payments and the deductions made throughout the tax year. The final FPS must be sent to HMRC on or before your employees’ last payday of the tax year, and it must have an indicator indicating that it’s your final submission.
This process involves the following steps:
- Sending your final Full Payment Submission (FPS) on or before employees’ last payday of the tax year. If you use payroll software, make sure to complete this process before processing the final payroll of the tax year and the final pay period payroll of the tax year.
- Filling ‘Yes’ in the ‘final submission for year’ field in your payroll software.
- Including end-of-year information on the last report for your PAYE scheme.
- Incorporating all employees paid in the tax year into your payroll, regardless of earnings.
- Including any employee who has worked since 6th April even if they have left.
This process ensures that HMRC can finalize their records accurately for you and your employees.
Submitting Employer Payment Summary (EPS)
When specific conditions apply, a final Employer Payment Summary (EPS) should be sent instead of an FPS. These situations could include forgetting to select ‘Yes’ for the ‘Final submission for the year’ field in your last FPS or not having this feature in your chosen payroll software. Also, suppose an employer did not make any payments during the last pay period of the tax year or had submitted the final FPS earlier than required without making any additional payments in the last tax year. In that case, an EPS is necessary to avoid the need to submit additional FPSs and prevent retrospective adjustments. Successfully sending the final EPS contributes to closing the tax year correctly and aids in efficient preparation for the new tax year.
Preparing and Distributing P60s
A P60 form is important for every employee as it summarizes their total pay and how much tax and deductions are for the tax year. Here are key points to note:
- It’s mandatory to provide a P60 to all employees still on your payroll as of April 5.
- Even if you’re exempt from completing your payroll online, P60s can be ordered from HMRC directly for distribution to your employees.
- If changes are to be made on a P60, a new one should be given to the employee marked as ‘replacement.’ This can either be a paper or an electronic document affirming the changes.
- The deadline for distributing P60s is May 31, the new tax year.
Keeping up with these points ensures that your employees receive necessary information timely, and there are no unattended queries at the end of the tax year.
Reporting Expenses, Benefits, and P11Ds
Another crucial aspect of the payroll year-end is reporting payroll benefits, expenses and benefits provided to employees throughout the tax year, particularly before the start of the tax year. This involves preparing and submitting P11D forms for each relevant employee and submitting a P11D(b) form detailing how much payment of Class 1A National Insurance, the company owes on all provided expenses and benefits, including matters related to intermediaries legislation. Accuracy in this step is essential, as it carries tax implications for both businesses and their employees.
Importance of P11Ds
The P11D form is a crucial document that reports the value of any expenses and benefits provided by an employer that directors and employees receive over and beyond their salary. By submitting accurate P11Ds by the HMRC deadline of 6th July, businesses ensure tax and National Insurance are correctly calculated and prevent potential penalties for late filing. This effort also assists employees in understanding the value of the benefits they receive, which can be a valuable tool in staff retention.
Filing P11D(b) Forms
In addition to P11Ds, businesses must also submit a P11D(b) form to HMRC. This form tells HMRC how much Class 1A National Insurance is owed on all provided taxable expenses and benefits. It’s necessary to file a P11D(b) if any P11D forms were submitted, employee expenses or benefits were processed through your payroll, or if HMRC has asked you to do so. It’s essential to remember that even when you do not have any Class 1A National Insurance to pay, you still need to submit a Nil P11D(b). This declaration ensures that HMRC doesn’t erroneously estimate a Class 1A liability and issue a demand for payment.
Preparing for the New Tax Year
While wrapping up the current tax year is critical, organisations must also prepare for the new year. Here’s how to prepare for the new tax year.
Check Tax Code Updates (P9X)
Before processing the first payroll of the new tax year, the start of the new payroll year, it’s essential to refer to HMRC’s P9X document that details changes in the new tax code changes in PAYE tax codes. HMRC will also send paper P9T forms or online notifications with instructions if any employees’ tax codes have changed. By incorporating the correct tax codes in the new payroll year, businesses can ensure accurate deductions and contributions made toward taxes. It’s worth noting that the tax codes of employees who haven’t received new ones from HMRC would require the removal of any Week 1/Month 1 indicator when carried over into the new tax year.
Review National Minimum and Living Wage Changes
It’s also important to adjust payrolls to accommodate changes in the National Minimum Wage (NMW) and the National Living Wage (NLW), which take place on 1st April each year. The rates depend on employees’ age and whether they are apprentices. For example, in the tax year 2025, the National Living Wage will be £11.44 per hour for team members over 23. The table below gives a brief overview of the rates for the 2025-2026 tax year:
| Age | Rate |
|---|---|
| 25 and over | £11.44 |
| 21 to 24 | £10.03 |
| 18 to 20 | £7.94 |
| Under 18 | £5.44 |
| Apprentice | £4.81 |
Keeping track of such changes can be challenging, but it is essential to abide by government regulations and ensure equal pay for workers.
Verify Eligibility for Employment Allowance
Employment Allowance is a scheme that allows eligible businesses to reduce their employer National Insurance contributions. As your company prepares for the new tax year, verifying whether it is still eligible to claim employment allowance is crucial. Factors affecting eligibility include:
- Business type and
- The total amount of employer National Insurance contributions in the previous tax year.
If eligible, you must reclaim your employment allowance each tax year, as claims don’t automatically roll over from one year to the next. Ensuring your business has properly claimed this allowance will help offset employer National Insurance contributions costs.
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Conclusion
Effective payroll year-end requires careful planning, precise execution, and attention to detail. By staying compliant with HMRC guidelines and leveraging payroll software, businesses can streamline operations, reduce errors, and enhance efficiency. Updating records, submitting paperwork, and preparing for the new tax year are key steps that ensure a smooth transition and ongoing compliance.
Frequently Asked Questions
What are the penalties if I miss the year-end payroll deadlines?
Missing these deadlines can lead to HMRC penalties. These fines can start from £100 per month (or part month) for each batch of 50 employees for late filing of FPS. Penalties for late payment of tax or National Insurance depend on how much is owed.
What are the key dates for payroll year-end?
There are key dates, such as the final day of the tax year on 5th April, submission of final FPS by 19th April and delivering P60s to employees by 31st May. The last date to submit your P11Ds using digital systems is the 6th of July.
How do I complete my payroll year-end tasks efficiently?
To conduct your payroll year-end tasks efficiently, you should use robust payroll system software that can automate most of the steps for payroll services, ensuring accuracy and saving valuable time. It also helps to plan ahead, stick to deadlines, and stay updated on HMRC guidelines.
