HMRC payroll checks focus on whether you report pay on time, deduct tax correctly, and keep proper records. UK businesses should use recognised payroll software, send FPS on or before payday, send EPS when needed, and keep payroll records for 3 years.
How HMRC payroll checks work
HMRC can review payroll records to check whether a business has paid the right tax and National Insurance. During a compliance check, HMRC may ask to visit the business, the owner’s home, or an adviser’s office, or it may ask the business to visit HMRC. An accountant or legal adviser can attend the visit with you.
HMRC may also issue an inspection notice or an information notice. If a business does not send the information HMRC asks for, or refuses a visit, a penalty can apply unless there is a reasonable excuse. HMRC says it will write after the check and explain the result, any extra tax due, and any penalty decision.
A payroll check is usually about accuracy, timing, and evidence. HMRC looks for correct reporting, correct deductions, and records that support what was paid and what was reported.
Businesses reviewing payroll audits and financial compliance should also understand how the Tax Crackdown on Savings Accounts is affecting reporting checks, banking transparency, and HMRC monitoring activity.
What UK businesses must do for PAYE
If a business runs payroll itself, HMRC says it must register as an employer, get PAYE Online access, choose payroll software, keep records, tell HMRC about employees, record pay and deductions, report to HMRC on or before the first payday, and pay HMRC the tax and National Insurance owed. HMRC also says businesses must complete annual reports and tasks for the next tax year, which starts on 6 April.
HMRC’s 2025 to 2026 employer guide says the payroll rules apply to all employers and includes real time reporting guidance. HMRC also says businesses should use software that is recognised by HMRC to report PAYE information online. HMRC cannot recommend one product over another, but it does list free and paid options.
A business should also check that a worker is in the right employment status before payroll starts. HMRC’s employer guidance separates employees from other worker types such as freelancers, consultants, contractors, and agency staff. This matters because payroll and tax duties can differ by status.
Payroll records HMRC expects
HMRC says payroll records must show that reporting is accurate and must be kept for 3 years from the end of the tax year they relate to. HMRC may check these records to make sure the right amount of tax is being paid.
If records are missing, lost, stolen, or destroyed, HMRC says the business should tell HMRC as soon as possible and do its best to recreate the records. If full records are not kept, HMRC may estimate what is owed and charge a penalty of up to £3,000.
Businesses should keep records that are accurate, complete, and readable. HMRC says it can charge a penalty if records are not accurate, complete, and readable, and different rules apply for records that prove the correct minimum wage was paid.
The payroll reports HMRC wants
For payroll run through PAYE, HMRC says the main report is the Full Payment Submission, or FPS. Employers must report employee pay, payrolled benefits, and deductions in an FPS on or before payday unless an exception applies. HMRC also says an Employer Payment Summary, or EPS, is needed by the 19th of the following tax month if the business needs HMRC to apply a reduction, such as statutory pay. If no employees are paid in a tax month, the business should send an EPS instead of an FPS.
HMRC says the FPS should include employer information, employee information, pay and deductions, and National Insurance information. Employers should include everyone they pay, even if they earn less than £96 a week. If there are errors, HMRC says the employer should send a corrected FPS as soon as possible.
HMRC also says the FPS should be sent on or before employees’ payday even if the business pays HMRC quarterly instead of monthly. The online account is then updated in the next tax month, and the business can see how much tax and National Insurance it owes, claim reductions through an EPS, and pay the balance by the usual deadline.
Late FPS filing and when penalties can start
HMRC can charge a penalty if the FPS is late or if the business does not send the expected number of FPS reports or does not send an EPS when no employees were paid in a tax month. HMRC says it will not charge a penalty if the FPS is late but all payments reported on it are within 3 days of payday, although repeat late filing can still lead to contact or a penalty. HMRC also says there is no penalty if the business is a new employer and sent its first FPS within 30 days of paying an employee, or if the business has its first late reporting failure in the tax year, except for annual scheme employers.
If an FPS is sent after payday without a valid reason, HMRC says the business may get an online penalty warning message for the first late FPS in each month and may also be charged a penalty. HMRC says certain late reporting situations are allowed, such as when a worker does not give a P45, when payday falls on a non banking day, or when an ad hoc payment is made outside the regular payroll run. In those cases, the business must put the reason for late reporting on the FPS.
Late payment penalties and interest
HMRC says PAYE and National Insurance that is not paid on time can trigger penalties. For some annual or occasional payments, such as Class 1A and Class 1B National Insurance, HMRC can charge a 5% penalty if the amount is still unpaid 30 days after the due date, another 5% at 6 months, and another 5% at 12 months. HMRC also says interest is charged if a penalty is not paid within 30 days of the notice.
For other PAYE payments, the penalty date is usually the day after the due date. HMRC says the penalty notice will explain what is owed, how to pay, and how to challenge the decision.
A simple payroll compliance checklist
The safest payroll control is to keep the process tight every month. HMRC guidance points to the same core steps every time. These are the main areas businesses should check before each payroll run: register correctly, use HMRC recognised software, keep records, report pay on time, and pay what is due by the deadline.
| Compliance area | What the business should do | HMRC expects |
|---|---|---|
| Employer setup | Register as an employer and set up PAYE | Before paying staff through PAYE |
| Payroll software | Use software recognised by HMRC | To report PAYE online |
| Payroll records | Keep accurate records for 3 years | Records must support the tax position |
| FPS reporting | Send FPS on or before payday | Report pay and deductions in real time |
| EPS reporting | Send EPS when no employees were paid or to claim reductions | By the 19th of the following tax month where needed |
| Tax payment | Pay PAYE and National Insurance on time | Late payment can bring penalties and interest |
What to prepare before HMRC checks payroll
A business should make sure every pay run has a clear audit trail. That means employee details are correct, payroll reports match payment records, and any change to tax code, leavers, starters, benefits, or pension status is reflected in the next submission. HMRC’s FPS guidance says employers should report new employees, employees who leave, the final report of the tax year, and cases where workplace pension payments start.
The business should also review whether all payroll reports were filed on time, whether all late reports included a valid reason, and whether any corrections were filed as soon as errors were found. HMRC specifically warns that late FPS reports without a valid reason can lead to a warning message and a penalty.
It is also sensible to check whether records can be easily produced if HMRC asks for them. HMRC says records must be readable, accurate, and complete, and it may estimate the tax if the records are not good enough.
Many companies improving payroll systems and workforce management are also exploring tools and workflow strategies discussed in Timewarp TaskUs to reduce reporting mistakes and improve operational accuracy.
How to respond if HMRC issues a penalty or decision
If HMRC issues a penalty, the business usually has 30 days from the date of the penalty notice to contact HMRC or appeal. HMRC says the business should explain why the return or payment was late, or why the penalty is wrong, and can use the correct PAYE appeal form where required. If the business misses the deadline, it will need to give a reason.
HMRC says penalty letters normally explain what to pay and what to do next. If the business disagrees, it can ask HMRC to review the decision and, if needed, take the case to the tax tribunal.
If HMRC finds that too much tax was paid, it will repay the amount and may add interest. If more tax is owed, HMRC will ask for payment within 30 days and will usually charge interest from the date the tax was due.
Where payroll mistakes usually happen
Payroll problems often come from missed deadlines, weak records, wrong worker status, or late corrections. HMRC guidance shows that these are the areas most likely to create filing penalties, late payment penalties, or a deeper compliance check. Businesses that keep their payroll software current, file FPS and EPS on time, and retain clean records are in a much better position if HMRC reviews them.
