28 SEPTEMBER 2026
Estimated reading time : 10 Minutes
HMRC Payroll Compliance Checks 2026: What UK Accounting Firms Must Know
A payroll and accounting compliance briefing for UK accounting firms, payroll managers and practice owners.
Payroll Is Where HMRC Looks First And 2026 Has Raised the Stakes
Payroll rarely makes headlines the way VAT fraud or IR35 does. But inside HMRC, it sits on some of the richest data HMRC holds on any business: Real Time Information (RTI) submissions give HMRC a pay-period-by-pay-period feed of what every employer says it pays, deducts and owes. That data is now cross-checked automatically, and increasingly, against other systems including the Fair Work Agency’s National Minimum Wage enforcement work, which took over strategic responsibility for minimum wage compliance from HMRC on 7 April 2026, with HMRC officers now carrying out day-to-day checks on the Agency’s behalf.
For accounting firms, this matters for a specific reason: payroll errors are rarely isolated. A missed starter declaration, a stale tax code, or an incorrectly treated benefit tends to repeat itself across every pay run until someone catches it and by the time HMRC does, the exposure can span a full tax year or more across an entire client bank. 2026 has added several genuine changes to the payroll landscape a new joint and several liability regime for umbrella company PAYE, day-one statutory sick pay, and the shift of minimum wage enforcement to the Fair Work Agency on top of the underlying PAYE and RTI rules that already drive most compliance activity.
This article sets out what HMRC payroll compliance checks actually look like in 2026, what’s changed, where accounting firms most often get caught out, and how to build a review process that holds up before HMRC ever asks.
What Are HMRC Payroll Compliance Checks?
An HMRC payroll compliance check is a review of an employer’s PAYE records, RTI submissions and supporting documentation to confirm that Income Tax, National Insurance and statutory payments have been calculated, reported and paid correctly. HMRC can open a check on any employer at any time; it does not require a specific trigger, though certain patterns
inconsistent RTI submissions, industry risk profiles, or discrepancies between reported pay and other data HMRC holds increase the likelihood of one.
Most payroll compliance activity falls into one of three categories:
- Routine risk-based reviews. HMRC’s systems flag anomalies automatically for example, an FPS that doesn’t reconcile with previous submissions, or a pattern of late or missing filings. These often start with a letter requesting specific records rather than a full-scale investigation.
- Employer compliance reviews. A more structured review of PAYE, National Insurance and, where relevant, National Minimum Wage records, usually covering a specific tax year or a sample of pay periods.
- Formal enquiries. Opened where HMRC suspects a more significant or deliberate error. These carry higher stakes: extended time limits for assessment, and the possibility of behaviour-based penalties rather than simple error correction.
The distinction matters operationally. A routine review is usually resolved by producing accurate records and correcting any genuine errors. A formal enquiry requires much closer handling of how an error arose because HMRC’s penalty regime is built around behaviour (careless, deliberate, or deliberate and concealed), not just the size of the underpayment.
What Does HMRC Check During a Payroll Compliance Review?
PAYE and National Insurance
HMRC checks that Income Tax and Class 1 National Insurance have been calculated correctly against the employee’s tax code and National Insurance category letter, and that employer (secondary) NIC has been applied correctly above the Secondary Threshold. For 2026/27, employer NIC remains at 15% on earnings above the £5,000 Secondary Threshold, with the Employment Allowance able to offset up to £10,500 for eligible employers. Because the threshold has remained frozen since it was lowered in April 2025, a growing share of part-time and lower-paid staff now generate an employer NIC liability that firms need to be actively modelling, not assuming away.
What HMRC may look for: director’s National Insurance calculated on the wrong basis (cumulative annual earnings period versus the alternative periodic method), incorrect category letters for apprentices or employees over State Pension age, and NIC not applied consistently across connected employers.
RTI Submissions
HMRC checks whether Full Payment Submissions were filed on or before each payday, and whether Employer Payment Summaries were submitted correctly for months with no pay, statutory payment recoveries, or Apprenticeship Levy adjustments. Persistent late or missing submissions are one of the clearest, most automatically detectable risk signals HMRC has.
Common compliance gap: payroll run on time internally but the FPS submitted a day or more later often because a review or approval step happens after the payment has already left the bank.
Firms managing this across a large client bank often find it easier to standardise the process with dedicated payroll processing support, rather than leaving submission timing to individual client teams.
Employee Records and Starter/Leaver Processing
HMRC checks that new starter information (including correct use of the starter checklist where no P45 is available), leaver dates, and student loan or postgraduate loan deduction flags have been applied correctly and on time.
Payroll Calculations
This covers the mechanics: correct tax code application following P6/P9 coding notices, correct treatment of emergency tax codes, accurate year-to-date figures, and correct handling of mid-year changes such as a change in working pattern or a salary sacrifice arrangement.
Statutory Payments
HMRC checks eligibility assessments and calculations for Statutory Sick Pay (SSP), Statutory Maternity, Paternity, Adoption and Shared Parental Pay, and correct recovery of these payments via the EPS. This area has changed materially for 2026 see the section below.
Benefits and Expenses
Payments to Directors
Director remuneration is a recurring area of HMRC interest, particularly at small owner-managed companies where salary and dividend levels are set for tax efficiency. HMRC checks that director NIC has been calculated using the correct method and that salary/dividend documentation (board minutes, dividend vouchers) is consistent with what payroll and the accounts actually show. Firms reviewing a director’s overall position often need this to tie back cleanly to corporate tax and personal tax and self-assessment filings for the same individual and company.
Employment Status and Labour Supply Chains
Where a business engages workers through agencies or umbrella companies, HMRC checks who is legally responsible for operating PAYE on that labour. This has become a significantly higher-stakes area for 2026 covered in detail below.
Payroll Records and Documentation
2026 Payroll Compliance Changes UK Accounting Firms Need to Know
Confirmed and now in force
Umbrella company PAYE joint and several liability (from 6 April 2026). New rules inserted into the Income Tax (Earnings and Pensions) Act 2003 by the Finance Act 2026 mean that where a worker is engaged through an umbrella company, the recruitment agency that supplies the worker or, where there is no agency in the chain, the end client now carries joint and several liability for that umbrella company’s PAYE and National Insurance. The umbrella company remains the legal employer and continues to run payroll and submit RTI, but if it fails to account for the correct tax, HMRC can pursue the agency or end client for the full shortfall without first attempting to collect from the umbrella. HMRC’s policy paper on the umbrella company market sets out the full detail. For accounting firms with recruitment, construction, healthcare or hospitality clients that use umbrella arrangements, this converts due diligence into a direct financial exposure that needs active monitoring firms building this into their process often find it easier alongside a dedicated payroll outsourcing partner who can track supply-chain risk across a whole client bank.
Statutory Sick Pay becomes a day-one right (from 6 April 2026). Under the Employment Rights Act 2025, the three waiting days have been removed and the Lower Earnings Limit no longer determines Statutory Sick Pay eligibility SSP is now payable from the first qualifying day of sickness for all employees, regardless of earnings level. The weekly SSP rate for 2026/27 is £123.25, though lower earners now receive the lower of 80% of their average weekly earnings or the flat rate. Payroll teams need to confirm their software correctly applies day-one eligibility and the new earnings-based calculation for lower-paid staff this is a rule change, not a rate change, and it affects every employer, not just those with sick staff on the day it took effect.
National Minimum Wage enforcement moves to the Fair Work Agency (from 7 April 2026). The Fair Work Agency now holds strategic responsibility for National Minimum Wage enforcement, with HMRC officers acting as FWA enforcement officers to carry out day-to-day compliance checks. The rates that took effect from 1 April 2026 are £12.71 an hour for the National Living Wage (21 and over), £10.85 for the 18–20 rate, and £8.00 for the under-18 and apprentice rate. Penalties for underpayment remain severe: up to 200% of the arrears owed, capped at £20,000 per worker, with public naming by the FWA and the Department for Business and Trade.
Employer National Insurance and the Secondary Threshold remain frozen. The 15% employer NIC rate and £5,000 Secondary Threshold introduced from April 2025 continue unchanged into 2026/27 see the current rates and thresholds for employers page for exact figures. Combined with wage growth, this continues to pull a larger share of part-time and lower-paid staff into an employer NIC liability year on year a point worth flagging proactively to clients budgeting on last year’s figures.
Confirmed but not yet in force plan now, don't apply yet
Mandatory payrolling of benefits in kind (from 6 April 2027, not 2026). This is one of the most frequently misunderstood 2026 payroll topics, so the distinction matters: mandatory payrolling of benefits in kind does not start in 2026. HMRC confirmed a phased rollout beginning 6 April 2027, covering company cars, car fuel, vans, van fuel and employer-provided medical benefits in phase one, with most remaining benefits following from April 2028. Loans and employer-provided accommodation are expected to stay outside the mandatory regime for now, with voluntary payrolling available. P11D and P11D(b) reporting therefore remains required for 2025/26 and 2026/27 for benefits not yet in scope. Employers can still choose to voluntarily payroll benefits ahead of the mandatory date, but firms should be careful not to tell clients this is a 2026 requirement it isn’t yet. Many UK accounting firms are already restructuring how they handle this deadline; see our related piece on why UK accounting firms are outsourcing P11D preparation in 2026 ahead of the phase-one rollout.
Watch this space
The honest answer to Canada’s accounting talent shortage is unglamorous: there isn’t one fix. AI is genuinely useful for the repetitive layer of accounting work, and Canadian businesses that ignore it are leaving real efficiency on the table. But the shortage is fundamentally about people an aging workforce, a narrow pipeline, and skills gaps that no software update closes. The businesses handling this well are the ones treating it as a workforce strategy question first, and a technology question second: upskill the team you have, work seriously on retention, automate what’s genuinely repetitive, and use flexible staffing including outsourcing where it fits to cover the rest.
Common Payroll Compliance Errors HMRC May Identify
1. FPS filed after payday, not before it.
What the mistake is: Payroll is calculated and approved on time, but the FPS submission happens the following day because it’s treated as an administrative step rather than part of the payment process.
Why it creates a compliance issue: RTI legislation requires the FPS to be filed on or before the date employees are paid. HMRC’s three-day informal grace period is a concession, not an extension to the statutory deadline, and persistent late filing is monitored.
What accounting firms should check: Whether submission is built into the same workflow as payment release, not scheduled as a separate task.
How to prevent it: Automate FPS submission at the point payroll is finalised, and review submission timestamps against payment dates at least quarterly.
2. Director's National Insurance calculated on the wrong basis.
What the mistake is: A director paid irregularly is assessed using the standard periodic NIC method instead of the cumulative annual earnings period (or vice versa, depending on which the client actually wants).
Why it creates a compliance issue: This produces incorrect NIC in-year, which then requires correction and looks, from HMRC’s side, like an inconsistency worth investigating.
What accounting firms should check: Which method is set up in the payroll software for each director, and whether it matches how the director is actually paid.
How to prevent it: Confirm the NIC calculation method explicitly at the start of each tax year for every director client, rather than relying on default software settings.
3. Benefits processed as expenses, or vice versa.
What the mistake is: A taxable benefit (private medical cover, a company car, non-business travel) is reimbursed or reported as an allowable expense rather than a benefit in kind.
Why it creates a compliance issue: This understates taxable pay and Class 1A NIC, and is one of the more common triggers for a formal enquiry because it’s easy for HMRC to identify from expense claim patterns.
What accounting firms should check: Expense categories against HMRC’s benefit-versus-expense guidance, particularly for company cars, subsistence, and home-to-work travel.
How to prevent it: Build a simple benefits-and-expenses decision checklist into onboarding for new client staff, rather than relying on ad hoc judgment calls each time.
4. Stale tax codes following a P6/P9 notice.
What the mistake is: HMRC issues a coding notice, but it isn’t applied until a later pay run sometimes several periods later.
Why it creates a compliance issue: This creates an in-year under- or overpayment of Income Tax that the employer is legally responsible for correcting.
What accounting firms should check: Whether coding notices are applied to the very next payroll run after receipt, not the next convenient one.
How to prevent it: A short pre-run checklist step confirming all outstanding P6/P9 notices have been actioned.
5. Incomplete records for casual, seasonal or short-term staff.
What the mistake is: Starter checklists, right-to-work evidence, or hours records are incomplete for workers engaged briefly or informally.
Why it creates a compliance issue: HMRC can request these records regardless of how short the engagement was, and gaps here can attract a separate record-keeping penalty.
What accounting firms should check: Whether onboarding documentation is completed and filed for every worker, including those on payroll for only one or two periods.
How to prevent it: Treat casual and seasonal staff to the same onboarding standard as permanent hires the record-keeping obligation doesn’t scale down with the length of engagement.
6. Umbrella company arrangements with no due diligence trail.
What the mistake is: A client uses agency-supplied labour via an umbrella company with no documented checks on that umbrella’s compliance.
Why it creates a compliance issue: From April 2026, the agency or end client can carry joint and several liability for that umbrella’s unpaid PAYE with no “reasonable care” defence available.
What accounting firms should check: Whether the client (or the firm, where it manages this on the client’s behalf) has mapped every umbrella company in its supply chain and retained evidence of due diligence checks.
How to prevent it: Build umbrella due diligence into the annual compliance calendar, not just at the point a new agency relationship begins.
HMRC Payroll Penalties, Interest and Consequences
What can happen if payroll errors are identified? Depending on the nature of the error, employers may face a late filing penalty, a late payment penalty and interest, an inaccuracy penalty based on behaviour, or for record-keeping failures a separate penalty of up to £3,000. Consequences scale with how the error arose and how quickly it’s corrected once identified, rather than being a single fixed outcome.
Late RTI submissions. A penalty applies where an employer fails to file the expected FPS or EPS on time see HMRC’s guidance on what happens if you don’t report payroll information on time. The first default in a tax year is generally not penalised (unless the employer runs an annual PAYE scheme), and HMRC has historically operated an informal three-day period of grace. Beyond that, penalty amounts scale with the number of employees on the PAYE scheme, broadly in tiers between £100 and £400 per month, with an additional penalty of 5% of the tax and National Insurance that should have been reported where a filing is more than three months late. Employers running more than one PAYE scheme can be penalised separately for each.
Late payment of PAYE. Where PAYE due to HMRC is paid late, interest accrues daily, currently calculated at the Bank of England base rate plus 4%, and separate late payment penalties can apply under the existing penalty schedule for repeated or prolonged late payment.
Incorrect submissions and inaccuracy penalties. Where HMRC identifies a careless or deliberate error in an FPS, EPS, or P11D(b), penalties are calculated based on the behaviour that led to the inaccuracy and the potential lost revenue genuine, innocent mistakes are treated differently from careless or deliberate underreporting, which is one reason a clear audit trail of how an error occurred matters as much as correcting it.
Record-keeping failures. Employers are legally required to keep PAYE, Statutory Payment and related payroll records for a minimum of three years after the end of the tax year to which they relate. Inadequate records can result in a separate penalty of up to £3,000, independent of any underlying tax issue.
National Minimum Wage underpayment. Penalties of up to 200% of the arrears owed, capped at £20,000 per worker, apply where minimum wage rates have not been paid correctly, alongside a requirement to repay the arrears and the possibility of public naming.
This is not an exhaustive list, and HMRC’s approach to penalties is explicitly risk-based rather than automatic in every case employers with a reasonable excuse, or who correct errors promptly and proactively, are treated differently from those who don’t engage until HMRC intervenes.
How UK Accounting Firms Can Prepare for an HMRC Payroll Compliance Check
A firm that can produce clean, reconciled records within days of a request is in a fundamentally different position to one that’s assembling documentation for the first time when the letter arrives. Practical preparation covers:
- Payroll records. Confirm every client’s payroll records payslips, RTI submission confirmations, coding notices, starter/leaver documentation are retained for at least three years and are retrievable without needing to chase a third-party provider under time pressure.
- RTI submissions. Reconcile FPS and EPS submission dates against actual payment dates across the tax year, not just spot-checked periods.
- PAYE/NIC reconciliation. Run a year-to-date reconciliation of PAYE and NIC reported versus PAYE and NIC paid, and investigate any variance before HMRC does this is exactly the kind of structured work an outsourced accounting service can run as a repeatable monthly task.
- Employee records. Confirm starter checklists, tax code history, and category letters are complete and consistent with current payroll data.
- Statutory payments. Check SSP, SMP and related calculations reflect the correct 2026/27 rules, particularly the day-one SSP eligibility change.
- Benefits and expenses. Confirm the correct reporting route (payrolled or P11D) has been applied consistently, and that Class 1A NIC has been calculated and paid.
- Payroll software. Confirm the software version in use reflects current-year rates, thresholds and rule changes an out-of-date configuration is a common, entirely avoidable source of systemic errors.
- Supporting documentation. Board minutes for director remuneration, dividend vouchers, and evidence of umbrella company due diligence should be filed alongside, not separately from, payroll records.
- Internal review procedures. A documented process for who reviews payroll output before submission, and what they’re checking for, gives HMRC (and the firm) confidence that errors are structural exceptions rather than routine.
- Outstanding discrepancies. Any known unresolved discrepancy should be corrected proactively HMRC treats voluntary disclosure very differently from an error it uncovers itself.
Payroll Compliance Checklist for UK Accounting Firms
Compliance Area | What to Check | Recommended Action |
RTI submissions | FPS filed on or before payday; EPS filed by the 19th where required | Reconcile submission timestamps against payment dates each quarter |
PAYE/NIC calculation | Correct tax codes, NIC category letters, and director NIC method applied | Run a year-to-date PAYE/NIC reconciliation against payments made to HMRC |
Statutory payments | SSP applied from day one at the correct 2026/27 rate; SMP/SPP/ShPP correctly calculated and recovered | Confirm payroll software reflects the Employment Rights Act 2025 changes |
Benefits and expenses | Correct treatment as payrolled benefit, P11D benefit, or genuine expense | Apply a documented benefit-versus-expense decision checklist |
Director remuneration | Salary/dividend split matches board minutes and payroll records | Reconcile director pay against company accounts and minutes annually |
Umbrella/agency labour | Due diligence evidence held for every umbrella company in the supply chain | Map the labour supply chain and document checks before April 2026 obligations bite |
National Minimum Wage | Correct rate applied by age band; working time correctly recorded | Cross-check pay against hours worked, not just headline hourly rate |
Payroll records | Retained for at least 3 years; complete for casual/seasonal staff | Include record completeness in onboarding sign-off, not just permanent hires |
Software configuration | Current-year rates, thresholds and rule changes applied | Confirm software updates at the start of each tax year before the first pay run |
How Outsourced Payroll Support Can Strengthen Compliance
For many accounting firms, payroll sits alongside compliance, advisory and bookkeeping work rather than as a standalone specialism which makes it one of the easier areas for small, repeated errors to accumulate unnoticed. Specialist UK payroll services can help in several concrete ways.
Processing accuracy improves where payroll is run by teams whose primary focus is keeping pace with in-year rule changes such as the 2026 SSP eligibility change or umbrella company liability rules rather than absorbing them alongside a broader compliance workload. Structured payroll reviews and reconciliations, run independently of the person who processed the payroll, catch the kind of errors that are hard to spot from inside the same process each month. Consistent documentation practices retained systematically rather than assembled reactively reduce the time and risk involved when records are requested. Ongoing compliance monitoring means rate, threshold and legislative changes are applied at the point they take effect, not discovered retrospectively. And for firms managing seasonal fluctuations or growing client banks, outsourced support offers workload flexibility and scalability without the firm needing to carry spare payroll capacity year-round.
None of this replaces the firm’s own oversight HMRC holds the employer responsible for payroll accuracy regardless of who processes it but a well-run outsourced or co-sourced payroll function reduces the volume of preventable errors reaching HMRC in the first place, and often sits well alongside outsourced bookkeeping services managing multiple compliance workflows in parallel both sitting under Viaante’s wider Finance & Accounting Services for UK businesses.
The Takeaway
Payroll compliance in 2026 is not a once-a-year exercise triggered by a P60 deadline or an HMRC letter. It’s an ongoing control process: RTI submissions that reconcile in real time, statutory payment rules that are applied the moment they change, and documentation that’s ready before it’s requested rather than assembled under pressure after. The firms best placed to handle an HMRC payroll compliance check in 2026 are the ones that never really stopped preparing for one they built the discipline into every pay run, so that when HMRC does look, there’s nothing left to find.
