Answers · UK 2025/26
How is a salary overpayment treated for tax in the UK?
If your employer overpays you, you owe the gross amount back. The employer can reclaim PAYE already paid from HMRC or offset it against future payroll. You cannot keep the net amount and leave your employer to absorb the tax -- the obligation to repay is for the full gross sum.
Full answer
Salary overpayments happen due to payroll errors, miscalculated bonuses or failure to stop pay after a leaver date. The tax treatment involves both the employer and HMRC. **The basic rule** The overpayment is still employment income in the year it was paid. HMRC received the PAYE and NI at the time. The employee received a net sum after tax. **Repayment in the same tax year** If the employee repays the gross amount in the same tax year in which it was paid, the employer adjusts payroll through RTI. The employee effectively never owed tax on the corrected amount, and HMRC reconciles via the normal FPS process. Net refund to employee from employer, employer reclaims from HMRC. **Repayment in a later tax year** This is more complex: - The employee may have been taxed on income they are now returning. They can claim tax relief via Self Assessment (if registered) or ask HMRC to adjust their tax code. - The employer cannot reclaim the original PAYE from HMRC for a prior year but can instead reduce the employee's earnings in the current year by the gross overpayment, generating a tax credit that offsets the current year's liability. - NI is not reclaimable in the same way -- if the contribution year is closed, NI overpaid may be lost. **Employment law dimension** An employer can recover an overpayment even without the employee's agreement (under Section 14 of the Employment Rights Act 1996), but must follow a fair process and avoid deductions that take pay below National Minimum Wage. **Documentation** Both parties should keep a paper trail: a letter confirming the overpayment, the repayment method agreed (lump sum or salary deduction), and confirmation from payroll that the PAYE has been corrected. HMRC may query the figures during a payroll audit.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.