Managing payroll can often be challenging and resource intensive for business owners. It involves navigating complex regulatory systems, such as Real Time Information (RTI), Pay As You Earn (PAYE), and National Insurance Contributions (NIC). Non-compliance with said rules can lead to penalties that are otherwise totally avoidable. These include fines for late filing, errors in tax calculations, or improper handling of employees’ financial data.
To stay on top of payroll compliance, maintaining an organised checklist is a methodical and effective tool. Especially checklists that cover a holistic range of steps and are a guide for employers; from HMRC registration through direct tax calculations.
This blog serves as an HMRC payroll compliance checklist for accountants – guiding them through this crucial process.
HMRC Payroll Compliance Checklist Items to Incorporate
The following section acts as a guiding checklist for UK-based employers to ensure HMRC payroll compliance checklist for accountants:
Am I registered with HMRC as an employer?
The first step for an employer in the UK is to register with HM Revenue and Customs (HMRC) as an employer. Registration initiates the employer’s Pay as You Earn (PAYE) tax scheme. An activation code will be mailed within 10 days of HMRC receiving the application, and it must be activated within 28 days to receive a Government Gateway ID. The employer will then receive two reference numbers from HMRC: the Employer PAYE reference number and the Accounts Office reference number.
Have I established the use of HMRC-approved payroll software in the business’s operative systems?
When processing your Real Time Information (RTI) to HMRC, it is essential that you use only HMRC-approved payroll software. This software must be able to accurately calculate tax, NI contributions, student loans, and pension contributions. Also, calculate the amount of statutory pay. In addition, the payroll software will need to record the actual time worked by each employee. This is necessary before submitting to ensure compliance with the new, more stringent rules regarding RTI.
Is my employee data secure and does the security meet GDPR standards?
As an employer, you are responsible for keeping all payroll information (bank details, pay amounts, NI numbers) safe and secure under the UK GDPR. Therefore, you should use strong passwords to protect the data, limit access to the data (only to those employees who require it to perform their job), and when the payroll information is stored with a cloud storage provider, ensure that the information is encrypted while in that storage provider.
Do I have systems in place to ensure retention of all payroll data for at least 6 years?
HMRC expects payroll documentation (wage paperwork, wage deductions, and any costs incurred whilst working) to be retained for a maximum of 3 years after the completion of the relevant accounting period. It is advisable to retain payroll records for a minimum of 6 years, which complies with the Limitation of Actions Act 1980 in relation to potential contractual disputes. In addition to this, it is necessary to retain all pay-related paperwork related to the National Minimum Wage (NMW) for a minimum of 6 years.
Have I been verified for “Right to Work” for all of my staff?
HMRC mandates you keep all documents regarding your payroll (wages, deductions, and expenses) for three years following the end of the tax year, but it is best practice to keep them for six years in accordance with the Limitation Act 1980 for all contractual claims. Additionally, NMW documentation must be maintained for a minimum of six calendar years.
Do I have copies of P45 forms for employees who have quit?
Employers must issue P45 Forms to employees who leave employment. The P45 Form provides details of any tax deducted from the employee or details of any refunds paid to the employee by HMRC. The payroll system will communicate with the HMRC and provide the employee’s P45 in a three-part document containing the necessary tax details for the employee’s new employer to complete the transition of employment without any issues.
Does the employment contract include detailed compensation information, along with the employment conditions?
The Employment Contract, which is mandatory to provide by every employer, must contain a detailed overview of the employee’s payroll conditions. This includes accurate amounts, deductions, timing of payroll (weekly or monthly), and the method of receiving payroll, overtime pay rate and expected bonuses.
Have the Income Taxes, National Insurance Claims (NICs), and associated loans been calculated for the employees?
Employers have to use PAYE to deduct PAYE and NIC based on tax codes to calculate and deduct employee NICs and income tax from the staff’s pay according to their individual tax code. The amount calculated must also be reported to HMRC via Full-Payment Submission (FPS) on the RTC schedule.
Do we have automated systems that submit FPSs and EPSs reports to HMRC by the Payroll date?
Employers establish automated systems for submitting FPSs and EPSs which provide accurate and real-time calculations without errors. This will provide employers with greater confidence and transparency with HMRC by using automated HMRC-registered software to ensure the correct submission is made, and by automatically issuing any required HMRC alerts for payments not sent to employees.
Have all my employees received accurate payslips on time?
Employers are subject to significant penalties imposed by HMRC as a result of payroll mistakes including £ 3,000 for not keeping proper records. As such, all employers are legally required to issue accurate payslips to their employees that provide the fundamental payroll data, which includes the employer’s detailed gross and net pay, as well as the details of any deductions made (for example, tax, NICs, and pension contributions).
Has the PAYE amount been paid by the 22nd of every month?
Employees who are still working on 5th April (which is the last day of a tax year for the purposes of Pay As You Earn (PAYE) tax) must receive from their employers a completed P60 by 31 May.
Where there is also the provision of any benefit that is subject to income tax (a company car, the provision of an interest-free loan (with private use permitted) and similar), a P11D return must be completed by 6 July for both the employee(s) and HMRC, following the end of the previous tax year.
Have the employees received their P60 and P11D forms?
Employers must provide a P60 form to all employees employed at the end of the tax year (5 April) by 31 May. If providing taxable benefits in kind. This can include company cars, private or health insurance. P11D forms must be submitted to HMRC and copies given to employees by 6 July 2025.
Have the tax codes been updated in line with HMRC P6/P9 notices?
If there are changes in the employee’s contract, for example, an increase in pay or transferring to a different location, it is the employer’s responsibility to inform HMRC of those changes. The employer will do this by updating the employee’s tax codes using a P6 (operational code) or P9 (beginning of the year) form. Once the updated forms arrive at the employer’s premises, they must be entered into payroll software immediately. At that point, employees will see the new codes effective for the next pay period.
Have the holiday pay benefits been calculated in advance?
Holiday pay needs to be calculated according to the average employee pay, and there is a requirement that all workers receive statutory holiday entitlement. Irregular Hours Workers (IHW) must have their holiday pay calculated according to the latest IHW 2025-26 guidelines to be paid accurately.
Has the IR35 form been updated to differentiate between employees and contractors?
When hiring contractors, employers need to decide if the contractors fit into the “off-payroll working rules”, which are IR35. If a contractor is classified as an employee by HMRC for tax purposes, then employers are required to deduct tax and NICs through payroll; this applies even if the employer is a small company.
Conclusion
The implementation of an employer’s standardised checklist significantly helps to ensure that the operations of an organisation are compliant and accurate throughout different functional areas. By using a practical tool like this payroll compliance checklist UK, employees can adjust it to fit the company’s strategic changes, updated policies, and/or expanded scope to ensure that employees are all working toward the same goal.
Using a systematic approach like a payroll compliance checklist UK to perform standard business functions (payroll administration) adds additional operational efficiencies as well as allows for improved transparency with HMRC, which is critical to maintaining a clean and compliant record, minimising errors and the risk of an audit, and enhancing the company’s reputation for professionalism and due diligence.
