Received more net pay than it states on my payslips, no visible deductions sent to HMRC on the extra income I received - what to do?

Question

I started a new job on the 26th of September, 2022 for an annual salary of £55,000.
Working 09:00 - 17:30, 5 days a week.
My monthly gross salary is: £4,583.33
I have a student loan, repayment plan 2.

My employer uses Xero to process payroll.

There's only 3 of us in the company - my manager sorts out all of the payroll / finances etc. and is by no means a qualified accountant.

The TL;DR is:

• I worked 5 days in September and should have been paid for those 5 days, the following week (week commencing the 3rd of October)
• I didn't get paid for those 5 days I worked in September
• Raised this with manager and he says Xero (his payroll software) doesn't allow him to work out just 5 days of salary
• Sends me £750 directly into my bank account (and I naively thought nothing of it)
• October's payroll comes around
• I get paid £750 less than what I should be getting (got paid a net of £2411.68 instead of what it says on the payslip, a net of £3,161.68).
• Manager says the difference was an advance payment from my October salary, sent to me at the beginning of October (to cover the 5 days I worked in September)
• I let him know that this doesn't make sense, as I should be paid for the entirety of October + the 5 days of September I worked.
• Manager emails his accountant, including me in the email
• Manager receives an email from the accountant privately (not including me), stating that he (my manager) has to "work it out manually".
• Proceeds to send me £605.38
• His explanation being:

Hi
I have added the September back pay to November's payslip.

Then we calculated your net pay for Nov.
Deducted October net pay.
Paid the difference today.

You'll see it on Nov's payslip when I formally post it at the end of the month.
Sorry for the hoo-hah.

• November's pay comes around, I get paid £146.76 more than it states on my net pay on my payslip.
• No mention of any additional deductions or values being added on my payslip. Payslip looks identical to October, with the addition of a payment towards my pension pot.

A monthly breakdown of the events:

---

September:

Initially received nothing. Further calculations done right at the bottom.

---

October:

06/10/2022: Received £750 (into my bank account)

25/10/2022: Received £2411.68 at the end of the month with my payslip (into my bank account)

This means that I have been paid appropriately for the month of October.

A net total of £3161.68 after tax & deductions.
Roughly a 31.016% deduction on my £4583.33 gross pay.

He messed up setting up my pension so I didn't contribute that month and only paid for:
PAYE: ~17.14%
NI: ~9.36%
Student Loan: ~4.516%

(Calculated as % of my gross pay)

All figures match in the payslip.

---

November:

27/10/2022: Received £605.38 as a one-off payment to cover September (I was told) (into my bank account)

28/11/2022: Received £3205.86 at the end of the month with my payslip (into my bank account)

My net total for November (the payslip states) was £3059.10

Roughly a 33.254% deduction on my £4583.33 gross pay.

After all of the deductions:
PAYE: ~17.14%
NI: ~8.396%
Pension: ~3.202%
Student Loan: ~4.516%

(Calculated as % of my gross pay)

That comes out to approximately: £3059.10 but I received £3205.86 into my bank account.

---

That means I have been paid an extra:

£605.38 on the 27/10/2022 and £146.76 on the 28/11/2022 (what I received: £3205.86, minus what I should have been paid £3059.10)

That's a total of £752.14 - which would cover the month of September (those 5 days I worked) but I don't understand how that figure works.

I expected:

£55,000 / 12 = £4,583.33

£4,583.33 / 22 (working days of September, incl. the public holiday on the 19th) = £208.33 (Which is the gross pay, per day)

£208.33 * 5 = a gross pay of £1041.67 (rounded) for the 5 days I worked in September

£1041.67 - 33.254% (approx percent of deductions, based on my November payslip) = ~£695.273058

Not £752.14 that I received.

---

I mean, the above does cover everything I worked for in September and I am pleased it's that much, but I just don't understand how he calculated these figures. The numbers just don't match up and I can't figure out if my calculation is wrong or his calculations are wrong. The discrepancies in the payslips are worrying me to be honest and I'm wondering if I can get into trouble for undeclared income (as that's what it looks like to me)?

When I check my HRMC app, I can see that I only paid taxes on the months of October & November. Nothing for my current employer for September.

Interestingly, the additional £146.76 I received in November seems to be the exact number I paid towards my pension, so I wonder if there's something wrong there as well?

Edit:

Breakdown of gross monthly wage, net monthly wage & various deductions.

My tax code is: 1257L

+-------------------------------+-------------------+-------------------------+---------------------------------+
|               _               |     September     |         October         |            November             |
+-------------------------------+-------------------+-------------------------+---------------------------------+
| Gross pay on payslip          | N/A (no payslip)  | £4,583.33               | £4,583.33                       |
| Net pay on payslip            | N/A (no payslip)  | £3,161.68               | £3,059.10                       |
|                               |                   |                         |                                 |
| Actually received (into bank) | ?                 | £3,161.68               | £3,205.86                       |
|                               |                   |                         |                                 |
| PAYE Deduction                | N/A (no payslip)  | £785.66                 | £785.66                         |
| NI - A                        | N/A (no payslip)  | £428.99                 | £384.81                         |
| Pension Self (5%)             | N/A (no payslip)  | 0 (he didn't set it up) | £146.76                         |
| Pension Work (3%)             | N/A (no payslip)  | 0 (he didn't set it up) | N/A (doesn't say on my payslip) |
| Student Loans                 | N/A (no payslip)  | £207.00                 | £207.00                         |
|                               |                   |                         |                                 |
| YTD Earnings                  | N/A (no payslip)  | £24,325.09              | £28,908.42                      |
| YTD PAYE Deduction            | N/A (no payslip)  | £3,476.06               | £4,261.72                       |
| YTD NI - A                    | N/A (no payslip)  | £428.99                 | £813.80                         |
| YTD Student Loans             | N/A (no payslip)  | £207.00                 | £414.00                         |
| YTD Pension                   | N/A (no payslip)  | 0 (he didn't set it up) | £146.76                         |
+-------------------------------+-------------------+-------------------------+---------------------------------+

I checked my pension scheme, it's with NEST.

I have two sets of contributions:

24th November 2022 - £140 from my wage
24th November 2022 - £105 from my employer
28th November 2022 - £140 from my wage
28th November 2022 - £105 from my employer

The way I worked out my contribution is as follows:
Tax year of 22-23:

Gross Salary: £4583.33
Qualifying Earnings: £4583.33

Qualifying Earnings Lower Threshold (monthly 2022/2023): £520
Qualifying Earnings Upper Threshold (monthly 2022/2023): £4,189

Taken from: https://www.thepensionsregulator.gov.uk/en/employers/new-employers/im-an-employer-who-has-to-provide-a-pension/declare-your-compliance/ongoing-duties-for-employers-/earnings-thresholds

Earnings on which pension is calculated:
£4,189 (Earning over Qualifying Earnings Upper Threshold ignored) - £520.00 = £3,669.00

Therefore my pension contribution is calculated as:
£3,669.00 * 5% = £183.45

Applying basic tax relief, that comes to:
£183.45 - 20% = £146.76
Which is what it states on my November payslip

Also, compared with the values from the pensions regulator website: https://www.thepensionsregulator.gov.uk/employers/work-out-your-automatic-enrolment-costs

This works out correctly.

If I am paying 5%, then my employer must be paying 3% (the minimum).

Therefore, using the same calculation:
£3,669.00 * 3% = £110.07

So I don't know what's going on there either, my employer is paying less into my pension than it says on my payslip but I think that's for another question.

My p45 states:

Leaving date: 22/09/2022

Total pay to date: £19741.76

Total tax to date: £2,690.40

W1/M1 does not apply (but at my current workplace, it does say W1/M1 on my payslip) Month number 6

Unfortunately those are the only figures I have. Are these sufficient?

Answer 1

I'll try to break things down a bit based on general principles of how payslips and PAYE should work.

You should certainly get payslips that reflect what you've actually getting paid. See https://www.gov.uk/payslips :

Your payslip must show:

• your earnings before and after any deductions
• the amount of any deductions that may change each time you’re paid, for example tax and National Insurance
• the number of hours you worked, if your pay varies depending on time worked

In your case you've received £752.14 after deductions that isn't accounted for on any payslip.

In addition, your employer said (or implied) that he was going to add the September back-pay to the November payslip. But the gross pay in the November payslip is just your normal monthly gross of £4583.33. So maybe he just forgot to do that when he got to issuing the November payslip?

It's hard to predict exactly what the gross and net back pay for September should have been.

There are various reasonable ways of calculating the gross amount, e.g. ratio of working days in the month as you have done, or maybe ratio of calendar days in the month, or an annualised version of either of those.

It's also hard to know the right deductions from that gross pay without more information, as it's effectively "extra" on top of your normal monthly pay that might end up taxed at 40%, and/or be over the NI upper threshold and hence attract a lower rate of NI.

As well as being confident that whatever you've received personally is correct, you should be concerned that your employer has sent the correct deductions to HMRC and NEST. I'll focus on PAYE for now; I haven't even tried to think about NI or student loans, and as you say your pension contributions also seem messed up.

PAYE operates on a cumulative basis over the tax year, and the most important thing to check is that the cumulative (YTD) taxable pay is correct and consistent with the cumulative PAYE deducted. From the information from your P45 and the information you've got from the HMRC app about your taxable pay, it looks like the "YTD earnings" is supposed to show your taxable pay.

In a previous version of this answer I incorrectly said that your pension contributions should have been deducted from your reported taxable pay. Digging into this further it appears that NEST contributions work via "relief at source" so the taxable pay being the same as gross pay does seem to be correct.

So apart from the fact that your backpay is not being included in your gross pay, I think your "YTD earnings" are correct.

I think your PAYE deductions are also correct given your tax code. However it's not clear to me why you're suddenly on a W1/M1 tax code as your new employer clearly used your P45 as they have included the cumulative pay to date in it.

The W1/M1 part makes it a "non-cumulative" tax code which means that your PAYE deduction is calculated on the basis that the current months earnings are repeated for every month in the tax year (including previous and future months). In your case, you were earning below the higher rate tax threshold in your previous employment and so should be paying a bit less tax until your cumulative pay for the year "catches up". Hoepfully this tax code will get fixed soon, either by your employer correcting it himself or by HMRC telling him the right one to use. If it's still not fixed by the end of the tax year, you should contact HMRC to get them to make sure you've paid the right tax for the year.

As to what to do now:

Your employer, and not his accountant, is ultimately responsible for this. But either he doesn't know what he's doing, or he is being pretty careless at getting it right. It'd probably be better in practice if the accountant would sort it out but it sounds like they don't want to either :-)

Obviously how assertive you should be about it is a tricky balancing between annoying your employer and actually having your affairs properly in order and not missing out on money you're owed. Ultimately HMRC is unlikely to blame you for your employer's cockups if you've made reasonable efforts to get them corrected, though deliberately receiving undeclared pay is probably technically tax evasion.

I think in your position I'd start by gently asking if the November payslip is correct given that the gross doesn't show any extra amounts for the September pay, and asking them to double-check your tax code. Once the gross pay and PAYE is correct it might be easier to check the NI and pension parts!