Payroll query: Can AVC errors be corrected retrospectively?

[tailsting]

I am taking Voluntary Severance from work and received my final payslip today, with details of my severance pay and usual salary payment. I exchanged emails with the payroll team a few weeks ago to let them know I wanted to pay a lump sum AVC in to my pension from my severance pay, in addition to my usual monthly AVC, and I set this up via my pension portal. Unfortunately, it looks like when they set up the lump sum AVC they cancelled the monthly AVC. 😬 It is a clear mistake on their part. I have emailed them to ask if a anything can be done but, while I'm waiting for an answer, I wonder if anyone on this thread has any insight into whether mistakes like this can be fixed retrospectively? I am not due any further pay, so can't make up for it next month.

Can you just pay that amount directly into your pension? I would have guessed that the employer doesn’t contribute more to your pension just because you have an AVC, so they’ve added the right amount. And then I guess it just depends whether you’re owed a tax rebate if you’re with a provider that deducts pension pre tax. But maybe your provider could advise on that? I doubt your employer can do much now!

Do you work in HR or payroll? Wondering if you have any expertise or are just giving an opinion. I'm still waiting to hear back from my payroll team, but in the meantime ChatGPT said this ...

The employee can repay the net amount to the employer, then the employer can:

• Run a payroll correction
• Reclassify the payment as a pension contribution
• Adjust tax and NIC through their payroll software
• Pay the AVC into the pension scheme
• Correct their HMRC submissions (RTI)

This usually results in:

• The employee getting a tax/NIC refund via payroll
• The pension receiving the correct contribution

I’m in HR, but have always used an external bureau for payroll, so while I’m very confident on the basics, tbh if your situation came up I’d be asking my bureau for support!

With Chat GPT’s suggestion, my only concern is how would the company know you’ve paid the AVC? Wouldn’t it be possible for them to do that, you to not contribute, and therefore be liable for tax fraud? I’m not saying you would - but that’s the risk to the employer! But maybe your company would take the risk since it was their mistake, or just ask you for proof you paid, or ask you to pay the AVC to them to pay on.

Which basically leaves you in the same place - I think different companies would handle that situation differently, and you need to wait until you hear what your company will do.

To be perfectly honest 1 month's AVC contribution, even if it's half your salary will have minimal impact on your pension. If course they can correct it, likely they will have to re-set you up on payroll like new starter then run the figures through. It will be a pain in the bum ... I'd just forget it if it were me.

Without going into all the figures, the impact is that I paid £5k more tax than necessary so no, I won't forget it. 🙂

It's a superannuation scheme, so there is an interface between the scheme and the employer. The AVC request was set up via the scheme portal, and passed to the employer, so they do know what the required payment should have been.

I can't pay directly into the scheme, I can only pay into it via my salary. Any reversal would therefore first need me to transfer the net payment back to my employer, as suggested by ChatGPT.

I'll wait to see what my payroll team say.

I do Uk payroll processing. If we made a mistake like this that causes you a loss (which it does) we would correct it similar to how ChatGPT describes.

I would expect the payroll manager to send you a draft of the payslip corrected and a letter confirming that providing the company receives your repayment of the net overpaid salary by dd/mm/yy then they will make the corrected payment into your pension fund (the tax error they can correct in their hmrc submission).

On a matter of trust you would then promptly repay the overpayment and they would confirm the correction in the pension submission. I would be surprised if they have paid over this months pension contributions yet and it’s not even 31st so they should be able to correct it for you.

If payroll refuses then you should send a letter to your manager, the HR director and the head of finance or payroll depending how big your employer is, and explain that you have suffered a loss because your avc was contributed incorrectly so you suffered too much tax and ask how they plan to rectify it

Any system is capable of being corrected - it’s the employers job to do the correction.

It is reasonable that you repay the overpayment first, I would expect you to do that as long as you have had a clear explanation how the correction can be done.

Good job you caught it quickly and it’s not crossing a tax year end!

But you can probably get that tax back by making a separate pension payment and reclaiming the tax on your self assessment tax return, so overall, if it's only about income tax, you can probably put yourself back into the same position as if the employer had done it correctly.

I don't usually do a tax return, so hope I won't have to in order to sort this out.

My fingers are still firmly crossed that the ChatGPT solution is correct, so it's good to get some positive comments on that from previous posters - thanks all.

I work in HR and yes, we have until the 22nd of the following month to make the pension contributions to hit statutory guidelines.

this happened a few months ago and unfortunately the person told us two months too late and we couldn’t do anything as we had shut his pension account down !

aslong as you have told them straight away this can be rectified

Definitely get this rectified- you'll save the NICs as well as it being simpler from a tax pov. It should be simple to do.

Also ! This would be re run in the next payment run with us and any tax owed would be paid back ! Your new payslip would be produced in February.

It's unusual not to be able to make a one-off contribution directly to the scheme. Usually you can and the scheme claims back the basic rate tax and you can fill in an HMRC form to reclaim the higher rate tax back (without filling in a full tax return). This is much less hassle for the employer than you making net repayments, them amending pension submission and HMRC submissions so if at all possible that's likely what they will suggest. If you have another pension scheme you can do the same if your employer scheme can't accept a one-off direct payment from you.
It should be possible for them to correct, but it is very fiddly for them and they're likely to usually handle corrections in the next month rather than submitting corrections. In this case though if it is their error and you don't have a next month they should resolve for you.

Just an update to say my payroll team have now been in touch. I've transferred an agreed amount back to them and they are in the process of correcting the AVC error.

Phew.