Prepare for an HMRC PAYE compliance check

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

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