Duplicate records in HMRC's system may seem innocuous, but they pose a much bigger problem for employers and the affected employees than most people realise. Since it may impact the employee's tax code, it can also have temporary financial consequences. Because of this, it is best to take steps to avoid duplicate records taking place, and luckily this is easy enough to do.
When outsourcing your payroll, the handover period between the incumbent and new provider is the time that would open up the most risk of HMRC creating duplicate records. To avoid this, we advise thorough checks while looking for a new provider so that you can be sure of the measures they have in place to prevent HMRC duplicate records where possible.
What are the scenarios where HMRC creating duplicate records could occur?
In our experience, usually, one of two scenarios have occurred that lead to HMRC creating a duplicate record.
Scenario one – leaver and starter notification overlap
Unfortunately, the first scenario is down to the proactivity and reliability of your provider, which is why we suggest a thorough process of due diligence whenever outsourcing your payroll. This scenario occurs where there is a change to the entity of some type, and P45s are produced. In this instance, if the payroll provider makes the leaver submission too late, this causes the leaver and starter notification for the schemes to overlap, leading HMRC to conclude that the individual employee affected has two jobs.
Scenario two – mistakes in payroll records
In scenario two, there is continuous employment, so the Pay As You Earn (PAYE) scheme does not change, but the employer has decided to move from one payroll provider to another. Therefore, effectively there has been no change in the entity.
This scenario arises if the first submission from the new payroll provider isn't the same as where it was left off with the previous provider. This could be in any area from the name or NI number through to earnings to date. HMRC cannot comb through every submission to check each employee, and therefore they are unable to identify that there has been a mistake and a new record is created for that employee.
The risk of this scenario occurring can, fortunately, be mitigated.
How can we reduce the risk of HMRC creating duplicate records?
The first port of call to reduce the risk of HMRC creating duplicate records and impacting your organisation and your employees is to undertake proper due diligence when choosing to outsource your payroll. This is critical whether you are outsourcing for the first time or switching from an existing provider to another.
Ensure that you ask about the steps taken to balance the payroll and how HMRC duplicate records can be provided during your checks.
What do we do at Dataplan?
One method of reducing the risk of HMRC creating duplicate records is to conduct parallel runs before going live with the payroll. However, this is ineffective at the beginning of the new financial year.
To combat this, at Dataplan, we go a step further, and from the very first instance, we go through all data provided from your previous provider with a fine-tooth comb. Then, we check to ensure that everything balances, balancing the employee totals with the company totals to guarantee the pay figures are correct.
We check the payroll element to element, ensuring everything from NI number to tax contributions are correct. Then, once we can be sure that everything is as it should be, the final piece of the puzzle is the flag that we turn on, which tells HMRC that the only change for the employee is their payroll reference number (if that is the case). Since there are such a large number of ways to create payroll reference numbers, this will likely have changed when you switched providers.
By flagging this with HMRC via FPS, their systems automatically merge the employment and treat it as one continuous record rather than creating a duplicate.
To find out more about how we ensure a smooth transition process and the work of our expert Implementation Team, please get in touch.