Payroll operations

Prepare for an HMRC PAYE compliance check

What to expect and how to prepare when HMRC reviews your PAYE records.

UK-wide
Guide summary

Prepare for a PAYE compliance check by gathering payroll records for the last 3 years. Cooperate fully with HMRC officers and be ready to explain any discrepancies. You may face penalties up to 100% of unpaid tax if errors are found.

  • Keep PAYE records for minimum 3 years after tax year ends
  • You typically get 7-14 days notice before a check
  • Common checks: employee status, expenses, benefits, tax codes
  • Penalties can reach 100% of unpaid tax plus interest
  • You have 30 days to appeal any penalty notice
  • Gather payroll records, RTI submissions, P45/P60 forms
  • Check your own records for errors before HMRC visits
  • Nominate one staff member to liaise with HMRC
  • Accountant or tax adviser can represent you
  • Take notes during the check of all questions asked
On this page
UK-wide

Related guides in Tax & Finance

HMRC carries out compliance checks to ensure employers are operating PAYE correctly. This guide explains what triggers a check, what to expect, and how to prepare.

Why HMRC might check your PAYE

  • Random selection: Routine checks on a sample of employers
  • Risk indicators: Late submissions, frequent corrections, sector patterns
  • Third-party information: Tips or information from other sources
  • Discrepancies: Differences between RTI and other returns
  • New employer: First-year employers sometimes checked
Notice period
Usually 7-14 days written notice before visit
Record retention required
Minimum 3 years after end of tax year
Penalties for non-compliance
Up to 100% of unpaid tax, plus interest
Appeal rights
30 days to appeal any penalty notice

Records HMRC may ask for

  • Payroll records: Employee details, pay, deductions, tax codes
  • RTI submissions: FPS and EPS submissions for reviewed periods
  • P45s and P60s: Employee forms issued
  • Starter checklists: Forms completed by new employees
  • Payment records: Evidence of payments to HMRC
  • Employment contracts: To verify employment status
  • Expense claims: Receipts and approval records
  • Benefits records: P11D working papers

Common areas of scrutiny

  • Employment status: Are "self-employed" workers actually employees?
  • Expenses: Are reimbursements genuinely business expenses?
  • Benefits in kind: Are all taxable benefits reported on P11D?
  • Tax codes: Are correct codes being applied?
  • NI categories: Are correct categories used (especially for directors)?
  • Statutory payments: Are eligibility checks being done properly?

Preparing for a compliance check

  1. Gather records early: Do not wait until the visit day
  2. Review your submissions: Check RTI submissions for the review period
  3. Identify any errors: Better to disclose voluntarily than be found out
  4. Prepare workspace: HMRC officer needs desk and privacy
  5. Nominate a contact: One person to liaise with the officer
  6. Consider representation: Accountant or tax adviser can attend

During the check

  • Be cooperative: Obstruction can lead to penalties
  • Answer honestly: Do not guess - say if you need to check
  • Take notes: Record questions asked and answers given
  • Request time: You can ask for time to find documents
  • Ask questions: Clarify anything you do not understand

After the check

HMRC will write to you with their findings:

  • No issues: Letter confirming compliance
  • Minor issues: Advice on improving processes
  • Underpaid tax: Assessment for additional tax plus interest
  • Penalties: Separate penalty notice if errors were careless or deliberate