How inaccurate P60s can cause tax issues
Filing a tax return is rarely anyone’s idea of an enjoyable activity, but accuracy is crucial to avoid costly penalties and unnecessary complications. Many taxpayers don’t realise that an inaccurate P60 can lead to significant tax issues and financial penalties down the line. This guide explains why precision matters when submitting your tax return and the critical role your P60 plays in this process.
What is a P60?
A P60 is an end-of-year form that provides a summary of your financial situation for the tax year. Specifically, it details your total earnings for the tax year, the amount you’ve paid in National Insurance contributions, your Pay As You Earn (PAYE) income tax payments, your tax code and any changes during the year, as well as details of taxable benefits and deductions.
This information is compiled from your employment earnings or pension income for the relevant tax year. If the P60 comes from a pension scheme, it will identify the pension provider, but it won’t show your contribution frequency or amounts you pay into your pension.
Your P60 serves several important purposes. It acts as proof of tax payment by documenting how much tax you’ve paid during the year, and serves as official evidence of your annual earnings for income verification. The document is frequently requested when applying for mortgages, rental properties, loans, and other financial services for this reason. Additionally, it supplies crucial information needed for completing self-assessment tax returns if you’re required to file one.
Why Checking the Figures Matters
As an employee, it’s tempting to assume all documentation provided by your employer is accurate. However, errors can and do occur. Your employer might unintentionally issue you with inaccurate documents, which will render your tax return incorrect if you’re required to file a self-assessment and your taxes are investigated.
HMRC takes the position that the ultimate responsibility for accurate reporting lies with the taxpayer. If you report incorrect information—whether it’s undeclared benefits, earnings or tax deductions—you could face penalties as a result of carelessness, even if the original error wasn’t your fault.
Accuracy is Important
The accuracy of your tax returns is determined not just by the processes your employer adopts, but your own processes too. No matter the size of the business, whether it’s a team of hundreds or a solo individual, any company can be subject to an audit. The more discrepancies there are with your report, the higher the risk of an audit, so checking everything is correct will save you time and hassle later.
By keeping your records as accurate as possible, and supplying any documentation required by HMRC promptly, you can avoid the risk and save yourself the time of having to deal with an investigation which can be stressful.
Inaccuracies can mean that businesses miss out on deductions and could even end up overpaying, which will affect their profits. What’s more, submitting your return with accurate figures means you’ll have a better overview of how your business is performing and where it stands financially. This will help you make better, more informed decisions as your company grows.
How to Verify Your P60’s Accuracy
Taking proactive steps to verify your P60 can save you significant headaches later. Compare the figures with your final payslip’s year-to-date totals for the tax year, which runs from 6th April to 5th April. You’ll also need to ensure your tax code is correct, as an incorrect code can lead to paying too much or too little tax.
Verify that your name, address, National Insurance number and employer details are correct, and take the time to review all deductions to confirm they match what you expect based on your circumstances. If you have more than one job or pension, you’ll receive a P60 from each source—make sure all are accounted for. If you notice any discrepancies, contact your employer immediately to request corrections, and keep records of these communications in case questions arise later.
Digital P60s and Careful Record-Keeping
With the increasing digitisation of tax processes, many employers now provide P60s electronically. These digital documents have the same legal status as paper versions but it’s important that you set up careful record-keeping processes. It’s recommended to save digital P60s in multiple secure locations and keep them for at least four years after the end of the tax year. For property income, self-employment, or complex tax affairs, you should retain records for at least 5 years to ensure you’re covered in case of any future audits from HMRC.
As we’ve explored, your P60 is an important document but it’s vital that you don’t assume the figures are automatically correct simply because they’ve been provided by your employer. Best practices include thoroughly reviewing all tax documentation before filing your return, consulting with a tax professional for complex situations, and keeping organised records of all tax-related documents. Remember, HMRC holds you responsible for accuracy (even if errors originated elsewhere), and filing early to allow time to address any issues that may arise.
Submitting your tax return can be daunting, especially if you’re unfamiliar with the requirements. Working with qualified tax professionals can ensure accuracy and minimise the risk of problems arising from incorrect information.
To find out more or to book the accounting and bookkeeping services of our tax investigation accountants, get in touch with Wellden Turnbull today.