The short answer: a demand is often an estimate, not a settled bill
When a brown envelope lands and your care agency's PAYE account suddenly shows thousands more owing than you expected, the instinct is to assume HMRC has caught a mistake and to find the cash. Hold on. A large part of what employers see on these demands is not a figure HMRC has worked out from your payroll at all. It is a figure HMRC has estimated because, for at least one month, your payroll numbers never reached it.
That matters because an estimate can be disputed by replacing it with the truth. If you did not send a Full Payment Submission for a month, HMRC may raise what it calls a specified charge, an estimate of what it thinks you owe. Send that month's missing submission and the estimate falls away. The parts of the demand built from figures you actually reported are a different matter, and we will be honest about which those are.
This guide is written by LOYALS, a King's Cross firm of accountants and business consultants that runs payroll and PAYE for care agencies across London, so the framing is the decision a finance lead with fifteen or more carers actually faces when the demand arrives, not a tour of the legislation. If you want the cornerstone on how we support providers, our care agency accountants page sets out the wider picture.
What a specified charge is, and why care agencies trigger them
A specified charge is HMRC's own estimate of what it thinks you owe for a tax month when you have not sent an FPS, or have not sent an EPS to say you paid no one. HMRC is clear that it bases the estimate on your previous PAYE payment and filing history, which is the sting in the tail for a care agency: your busiest month, with a full rota and holiday cover, can be used to estimate a quiet one, so the guess comes out high.
Care agencies trigger these more than most employers, and not through carelessness. Payroll in domiciliary care runs fortnightly or four weekly around travel time, zero hours contracts and a stream of starters and leavers, and the month where every carer's National Insurance is covered by Employment Allowance is exactly the month an office manager forgets to send the nil EPS. HMRC sees no submission, assumes a normal month, and estimates accordingly. The operator level point most guides miss is this: the demand is usually not telling you that you underpaid, it is telling you that one month never arrived.
There is a genuine cost on top of the estimate, though. HMRC charges late filing penalties by headcount, and for an agency with fifteen to forty nine people on the payroll that is 200 pounds a month, rising to 300 pounds at fifty and 400 pounds at two hundred and fifty. Penalty notices come quarterly, and interest is avoided if you pay within 30 days of the notice. A first failure in the tax year is normally let off. None of that changes the main event, which is that the estimated tax itself can be removed.
Reconcile the demand against the payroll you filed
Before you dispute anything you need one page that puts HMRC's figure next to yours, month by month. This is the reconciliation we build for every care client who brings us a demand, and you can build a simple version yourself. Take the demand, split it into the tax months it covers, and against each month write three of your own numbers: what your payroll software says was due on the FPS, what you actually paid to HMRC and when, and any reductions you were entitled to that month, such as Employment Allowance or reclaimed statutory pay.
The gaps tell you everything. A month where HMRC's figure is far above your FPS total, or where there is no FPS at all, is a specified charge to clear. A month where your FPS and the demand agree but you have a bank payment that is not showing is an allocation problem, not a tax problem. A month where the employer National Insurance looks too high is usually a dropped Employment Allowance claim. Work from your payroll records, not from the running balance in your HMRC account, because that balance already has the estimates baked into it.
HMRC runs a service to get help to correct an employer PAYE bill that is worth knowing about. You give it your PAYE reference, your Accounts Office reference, your tax reference and the FPS amounts from your payroll software, and it says explicitly to give the figures as they appear on your payroll software, not from your HMRC business tax account. You submit a separate request for each tax year, and HMRC says it will come back to you by email within 40 working days with the FPS information it holds and a help card. That is useful when you cannot see where the difference is, but it is slower than simply sending the missing month yourself once your reconciliation has found it.
Which figures you can actually dispute
Four items on a care agency demand are genuinely disputable, and it is worth knowing each one by name before you phone HMRC.
The specified charge for an unfiled month
This is the big one and it is the easiest to clear. Sending the missing FPS or EPS for that exact month replaces the estimate with the amount actually due and, HMRC says, supports an appeal against any late filing penalty attached to it. One warning that catches people out: if you send updated year to date figures in a later month's FPS rather than the missing month's own submission, the specified charges stay in place. It has to be the right month's filing.
A payment that is sitting against the wrong bill
Employer PAYE payments carry your 13 character Accounts Office reference, and an early or late payment needs four extra digits on the end that tell HMRC the tax year and the month the money is for. HMRC's guidance on payment reference numbers warns that if you use the wrong reference your payment may be delayed or used to pay a different tax bill you owe. So a month can show as unpaid even though the money left your account weeks ago. Do not pay it twice. Ask the HMRC employer helpline to move the payment to the correct period, with your bank reference and the date ready.
An Employment Allowance claim that dropped off
Employment Allowance can reduce your employer National Insurance by up to 10,500 pounds a year for 2026 to 2027, but it is not automatic. You have to claim it again every tax year by setting the Employment Allowance indicator to yes on an Employer Payment Summary. A new payroll run, a software switch midway through the year or a change of office staff is all it takes for that claim to disappear, after which HMRC's figures show more employer National Insurance owing than you really owe. Reinstating the claim on an EPS for the year brings the demand down by the allowance you were due.
Statutory pay you never reclaimed
Maternity, paternity, adoption and the other statutory payments are largely recoverable. Employers can usually reclaim 92 percent, and a smaller care agency often qualifies for Small Employers' Relief, which lifts the recovery to 109 percent where your Class 1 National Insurance was 45,000 pounds or less in the last complete tax year. You claim it through the EPS. In a workforce that is mostly women, care agencies leave real money on the table here, and an unclaimed reclaim makes the PAYE account look worse than the business actually is.
Which parts you usually cannot dispute
Being straight about this saves you time and credibility with HMRC. Where your own FPS shows tax and National Insurance deducted from carers' wages, that money is due and disputing it will not work, because the figure came from you. The same goes for employee deductions you withheld but have not yet paid over: the cash belongs to HMRC and a dispute only delays the inevitable. A late filing penalty that relates to a month you genuinely filed late also tends to stand, unless you have a reasonable excuse or it was your first slip in the year.
Our position, after doing this for care agencies for years, is simple: do not pay a demand that includes a specified charge until you have filed the missing month, because you would be paying an estimate you can erase. The one time we tell a client to pay first is when the disputed amount is small against the risk, for example where HMRC is close to enforcement or has mentioned a security, and protecting the carers' payroll and the agency's bank matters more than holding out on a few hundred pounds. That judgement, how big the disputed figure is against how close HMRC is to acting, is the whole decision.
How to respond, and what to send HMRC
Once your reconciliation is done, the response writes itself. For each disputed month, send the actual filing HMRC is missing rather than a letter describing it.
- File the missing month. Send the FPS for a month where carers were paid, or an EPS marked no payment for the period where they were not. This is what replaces the specified charge with the real figure.
- Reinstate reductions. If Employment Allowance or statutory pay recovery was missed, put them on an EPS for the year so the employer National Insurance falls to what you actually owe.
- Move misallocated payments. Call the employer helpline and ask for any payment sitting against the wrong month or the wrong tax to be reallocated, with your bank reference to hand.
- Appeal penalties with the right reference. Where a penalty should not stand, appeal online through the PAYE for employers service and quote the unique ID shown on the penalty notice.
- Keep the evidence together. Hold the submission receipts and your reconciliation in one place, because if HMRC queries it you want the whole story on one page.
If your payroll software cannot refile a closed month, or you simply cannot see where the gap is, that is the point to bring in help. Our payroll and PAYE service picks up exactly this: we rebuild the position, file what is missing and deal with HMRC so you are not spending a Saturday on hold.
What this means for you
Treat the demand as a question, not a verdict. Pull the months apart, file the ones that never reached HMRC, move any payment sitting in the wrong place, and put back the Employment Allowance and statutory recovery you were entitled to. In most cases the number that frightened you on the envelope is not the number you owe. Hold your nerve, file first, and pay the corrected figure.
If you would rather not spend an evening reconstructing payroll months, ask our payroll and PAYE team to check the disputed payroll balance and prepare the response for you. LOYALS is a King's Cross firm of accountants and business consultants that runs payroll, PAYE and the wider finance function for care agencies across London, and we would rather clear an estimate than watch a provider pay one.