What is a payroll audit? Best practices for UK businesses
A payroll audit is a process whereby a company’s payroll systems and processes are investigated to ensure they are accurate and compliant. The audit is conducted officially by HMRC, but it is strongly recommended that businesses have their own auditing systems in place to ensure payroll processes are up-to-date. This guide will take you through the process in more detail and share advice on best practices to ensure your payroll runs smoothly every month.
What is a payroll audit?
A payroll audit, also known as a PAYE audit, is a review of your payroll compliance conducted by HMRC. As an employer, you’re responsible for collecting your employee’s PAYE and directing it to HMRC every three months. But the process doesn’t end there. The taxman will investigate a number of compliance factors to make sure that your employees are paying the correct amount of tax, such as:
- Employee tax codes
- Expense payments
- Benefits and schemes e.g. car allowance
- Minimum and living wage compliance
- Right-to-work checks
A payroll audit can and should also be conducted internally, by your business's payroll department or a specialist payroll partner like Finesse Resources. This helps pre-empt any investigations by HMRC and ensures continuous compliance.
How often does payroll get audited by HMRC and how long does it take?
There is no hard and fast rule regarding how often HMRC audits a business. However, it can happen at any time with little notice so it’s best to make sure your payroll is compliant and investigation-ready at all times.
The first sign of an audit will be a brown letter sent to your company address from HMRC. The time it can take to complete varies on the level of investigation that HMRC plans to conduct. It can range from a month to over a year.
How to prepare for a payroll audit
The word ‘audit’ has an unfair reputation in the business world. It is usually much less scary than anticipated and can be a really helpful exercise in ensuring your employees are receiving the correct amount of take-home pay.
The aim of the audit is to make sure your business complies with the government’s guidance on PAYE and National Insurance payments. If you are a small to medium business and don’t have your own payroll team in-house, the best option is to bring the experts in.
A good payroll partner like Finesse Resources will conduct a Payroll Quality Assurance Service. This is a non-official audit of your payroll that checks everything is working as it should be. This thorough service involves going through every aspect of your payroll system, highlighting not just the weak spots but where your system is working efficiently, too. Finesse Resources then consults with you and your finance team to iron out any issues that were identified so that every aspect of your payroll is compliant, competent, and competitive.
The regularity of these internal audits depends on the size and scale of your business, but it is considered best practice to perform a check every financial year. Your chosen payroll partner will recommend how often checks should take place, either as a standalone service or as part of a wider payroll solution.
Do you have more questions?
We get it, payroll can be complicated and the complexities of individual businesses mean that it can be hard to answer all of your questions in a single blog post. Our experts are on hand to answer all of your questions and talk you through the services
If you’re a UK-based business looking for answers to your payroll headache, get in touch with Finesse Resources today.