Most payroll migrations go smoothly. The problems often don't appear until weeks later, when HMRC starts treating an employee as though they've started a completely new employment.
One of the most common causes is a change in payroll number that hasn't been reported correctly.
Because payroll numbers are an internal reference, it's easy to assume changing them is simply an administrative task with little wider impact. In reality, they're one of the data points HMRC uses to match payroll records between submissions. If a payroll number changes and that change isn't reported correctly, it can create avoidable issues for payroll teams, employees and HMRC.
A payroll number is an employer-assigned reference used to identify an employee within the payroll system. While HMRC primarily identifies employees through their National Insurance number, payroll numbers are also included on every Full Payment Submission (FPS) and form part of the data used to match payroll records.
Many organisations choose to change payroll numbers when implementing a new payroll system. This may be because they are adopting a new numbering convention, introducing payroll standardisation across multiple companies or schools, or simply starting with a cleaner employee reference structure.
If payroll numbers are changed, HMRC must be informed correctly.
When an employee's payroll number changes, the employer must report:
This is achieved through the Payroll ID Changed Indicator on the Full Payment Submission (FPS).
The indicator should be set to "Yes" for the first FPS submitted after the payroll number changes. This tells HMRC that the employee has not left employment, but has been allocated a new payroll identifier.
If this indicator is omitted or set incorrectly, HMRC may treat the new payroll number as though it relates to a completely different employee.
HMRC may create what appears to be a second employment for the same employee rather than updating the existing record.
If HMRC believes an employee has started a new employment, it may issue inappropriate tax codes, emergency tax codes or duplicate coding notices.
Employees may find that they are taxed incorrectly, their Personal Tax Account displays duplicate employments, their employment history is inaccurate, or they receive unexpected correspondence from HMRC.
Incorrect matching of employment records can affect National Insurance records and contribution histories.
Payroll teams may need to spend significant time working with HMRC to merge records or investigate apparent duplicate employments.
To minimise the risk of HMRC issues, organisations should follow a structured migration process.
Changing payroll numbers is not always necessary. If there is no operational benefit, retaining existing payroll numbers can significantly reduce migration risk.
Ensure every employee record contains:
Before the first payroll is processed:
For every employee whose payroll number has changed:
After the first FPS has been accepted:
The majority of payroll migrations are completed without issues, but many of the problems encountered after go-live can be traced back to poor migration data or incorrect HMRC reporting.
Payroll number changes are relatively straightforward when managed correctly, but failing to notify HMRC using the Payroll ID Changed Indicator can create avoidable complications that take considerable time to resolve.
By validating employee data, retaining previous payroll references, and ensuring the FPS is configured correctly, organisations can help ensure a smooth transition to their new payroll provider while maintaining accurate HMRC records and minimising disruption for employees.
A smooth transition depends on more than transferring employee data by an agreed date. Previous payroll references need to be retained, records must be checked carefully, and the first submission to HMRC needs to reflect any changes correctly.
These details can be easy to overlook, but resolving the resulting problems after go-live can take considerably more time than checking them during the migration.
At KeystonePay, we manage this process carefully from the outset. We validate payroll data, check how employee records will be reported and work through potential issues before the first live payroll is submitted. This helps reduce the risk of duplicate employment records, incorrect tax codes and avoidable disruption for employees.
If you are planning to change payroll provider, speak to our team about how we can support a well-managed transition.
