In this section:
As an employer, you'll usually need to deduct Income Tax and National Insurance contributions (NICs) from your employees' pay and send the amounts you deduct to HM Revenue & Customs (HMRC) each month or quarter. This system is called Pay As You Earn (PAYE).
If you operate PAYE, you must keep records even if you don't need to deduct Income Tax or NICs. This guide will give you information about what records you must keep, for how long and in what format.
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It's essential to keep accurate payroll records so HMRC can make sure that:
You'll also need these records so that you can file Employer Annual Returns and provide evidence to support the entries made on it - if HMRC asks for such evidence. HMRC often refers to the keeping of good records as 'taking reasonable care' to get your returns right.
You must keep your PAYE records for the current and previous three tax years. You can keep them in either an electronic or a paper format.
Using software to maintain your employees' payroll records saves you time and helps reduce error. It also makes it easier and quicker for you to file your Employer Annual Return (P35 and P14s) online - this is now a requirement for almost all employers.
You must keep full and accurate payroll records for each employee for the current and previous three tax years.
These must include:
You'll also need to keep details of:
HMRC may ask to see evidence of how you made your calculations for any of these. They may also ask to see supporting information like invoices and receipts.
If you still use paper PAYE forms rather than keeping electronic payroll records, HMRC can provide some standard forms to help you work out and record the figures you need:
You don't have to use these forms - but if you're still keeping paper records you'll probably find they make life easier. If you choose to use your own paper records rather than using HMRC forms, you must make sure they include all the information HMRC needs.
If you don't keep full records, HMRC may make estimates of what you'll have to pay.
Payroll calculations and records an introduction
Expenses and benefits record keeping - more detail
You'll need your records in order to complete:
You are not required to keep a copy of your form P35 or P14s that make up your Employer Annual Return. Most commercial software, HMRC's Online Returns and Forms service and HMRC's Basic PAYE Tools package allow electronic copies to be kept.
HMRC no longer supplies P14 and P35 stationery for employers who must file online. If you do wish to keep a paper record then you should download form P35 and P14 from HMRC's website and use to retain any paper copies you wish to keep.
Filing your Employer Annual Return online find out more
An overview of the PAYE Online service
Download Basic PAYE Tools (Opens new window) from the Business Link website
As you are required to keep records of the payments you have made to HMRC for the current and previous three tax years, you should be able to reconcile payments you've made using your own records.
If however you are having difficulty in doing that, you can contact HMRC's Payment Enquiry Helpline to confirm the amounts, allocation and dates of the last three payments made during the current tax year. You'll find a link to contact details for the helpline at the end of this section.
If you need to reconcile more than the last three payments, you will need to send HMRC the details you hold of the payments you have made. HMRC will check these details against their records and either confirm that they are correct or advise where any differences exist.
Alternatively, if you are classed by HMRC as a 'Large Business' and
have already had contact with your assigned Customer Relationship Manager,
you can approach them with any concerns over reconciling PAYE payments.
Find contact details for HMRC's Payment Enquiry Helpline
You'll need to record:
You should also keep records of supporting medical evidence, which is usually a note from your employee's doctor or hospital.
Read the detail about calculating, recording and recovering SSP
If your employee takes parental leave or receives statutory pay when they become a parent you'll need to record details of:
Their entitlements will depend on how long they've worked for you, and how much they earn.
Read more about keeping records relating to Maternity, paternity, adoption and sickness
If you don't have to fill in a form P11 or equivalent payroll record for an employee you must still keep a record of:
If you're not sure whether you need to complete a form P11 read the guide 'Taking on a new employee'.
It's not only records relating to PAYE and statutory payments that you must keep by law. You should, for example, also keep records of:
For the detail on setting up and keeping staff records, including Data Protection requirements, read the guidance on the Business Link website.
Keeping the right staff records - Business Link guide (Opens new window)
If your company or organisation does not keep adequate records for statutory payment purposes, or does not retain records for long enough, you may be charged a penalty of up to £3,000.
It is in your interests to keep records for all payroll aspects, as failure to pay the correct amount of PAYE tax or National Insurance contributions due for you employees each month will attract a penalty.
If your company or organisation's business records are lost, stolen, or destroyed and you can't replace them, you must tell HMRC as soon as possible and do your best to recreate them.
You must tell HMRC whether any figures in your Employer Annual Return are:
In some instances HMRC may be able to help you reconstruct your deductions working sheet to establish the wages paid. You should contact your HMRC office if you find your self in this position.
Setting up a basic record keeping system - wages book - a BusinessLink guide (Opens new window)
