Running a payroll reconciliation in the United Kingdom
Reviewed by Mellow Editorial Team, HR & payroll content team
A payroll reconciliation confirms that the amounts calculated in your payroll software match what you have actually paid employees and reported to HMRC. Done correctly, it catches errors before they become penalties or overpayments that are difficult to unwind.
What payroll reconciliation involves
At its core, reconciliation means cross-checking three things against each other: your payroll journal (the figures your payroll software calculated), your bank statement (the amounts actually transferred to employees and HMRC), and your HMRC submissions (the Full Payment Submissions, or FPS, filed under Real Time Information).
If all three agree, the period is clean. If they do not, you have a discrepancy to trace and resolve before moving on.
Step 1 — Check your gross-to-net calculations
Start with the gross pay for every employee. Verify that:
- The correct tax code has been applied. Tax codes determine how much of the personal allowance (£12,570 in 2026/27) is available before income tax at 20%, 40% or 45% applies.
- Employee National Insurance has been deducted at 8% on earnings within the main band, and 2% on earnings above the upper limit, using category A for most employees.
- Employer NI at 13.8% has been calculated correctly and is reflected in your employer cost figures — it does not appear on a payslip but must reconcile to your accounts.
- Pension deductions reflect at least the statutory minimums: 3% employer contribution and 5% employee contribution on qualifying earnings under auto-enrolment.
Run a line-by-line check for any new starters, leavers or mid-period changes, because these are the most common sources of error.
Step 2 — Reconcile payments against the bank
Once the gross-to-net figures are confirmed, compare the net pay total on your payroll report to the bank transfer that went to employees. These should match exactly. Then check the separate PAYE payment to HMRC — income tax deducted from employees plus both employees' and employer's National Insurance — against what your payroll software shows as due for the period.
If you use a BACS bureau or batch payment file, confirm that the file total equals the payroll report total before release. A rounding error or a duplicate payment line is much easier to correct before the funds leave your account.
Step 3 — Verify your RTI submissions
Under Real Time Information, you must submit a Full Payment Submission to HMRC on or before each payday. Pull the submission history from your payroll software and check:
- An FPS was filed for every pay run in the period.
- The values on each FPS — gross pay, tax, NI, employee count — match the corresponding payroll report.
- There are no unexpected "late" flags, which can trigger HMRC enquiries.
If you submitted an FPS with an error, you correct it via a Further Late FPS or an Earlier Year Update (for prior tax years), not by amending the original.
Step 4 — Reconcile year-to-date figures
Month-by-month reconciliation prevents drift, but you also need to maintain a running year-to-date total. At the end of each period, your cumulative tax and NI figures should tie back to every FPS filed since 6 April. This is the foundation of the documents you will produce later: the P60, which must be issued to every employee still in your employment by 31 May after the tax year ends, and the P11D for expenses and benefits, due by 6 July.
Errors that compound over the year are significantly harder to unpick in April than they are in, say, July.
Step 5 — Reconcile headcount and statutory payments
Check that the number of employees on your payroll report matches your HR records. Leavers who have not been closed off in payroll will continue generating calculations. Equally, confirm that any Statutory Sick Pay or statutory family-leave payments made in the period are correctly recorded — these have specific rules on eligibility and rates, and errors here affect both the employee's net pay and what you reclaim from HMRC.
Since the Employment Rights Act 2025 strengthened day-one rights for employees, it is worth auditing your new-starter process at the same time: employees now have access to certain statutory entitlements from their first day, so payroll must be set up without delay.
Common causes of reconciliation breaks
- Wrong or emergency tax code on a new starter
- Mid-month salary change applied to the wrong period
- A pension contribution calculated on total pay rather than qualifying earnings
- A bank payment released for a different value than the payroll report (often a manual adjustment made outside the system)
- An FPS filed with the wrong payment date, which shifts the liability to the wrong period in HMRC's records
Working to a consistent reconciliation checklist each pay run — rather than treating it as an end-of-year task — keeps your PAYE account accurate and reduces the risk of penalties from HMRC for late or incorrect submissions.
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