PAYE record keeping

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.

On this page:

Why records need to be kept and for how long

It's essential to keep accurate payroll records so HMRC can make sure that:

  • you and your employees are paying the right amount of tax and NICs
  • your employees are getting any statutory pay they're entitled to
  • you're complying with legislation on things like the national minimum wage

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.

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Records relating to pay, tax and NICs

You must keep full and accurate payroll records for each employee for the current and previous three tax years.

These must include:

  • a record of their name and address
  • payslips or some other record showing their gross earnings, the tax, NICs and any student loan repayments you deduct, and their net pay - you can use a form P11 or an equivalent payroll record (such as an employee's record in a commercial payroll software package)
  • records used in order to complete any form P11Ds you've filed for benefits in kind and expenses

You'll also need to keep details of:

  • any additional NICs paid for the year, like Class 1A NICs
  • pension payments
  • statutory payments - these are Statutory Sick Pay, Statutory Maternity Pay, Statutory Adoption Pay and Statutory Paternity Pay – read the next two sections on this page for more details
  • leave and sickness absences, overtime, commission and bonuses
  • the value of benefits and expenses payments
  • payments you've made to HMRC - or recoveries you've claimed

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:

  • P11 - pay and deductions working sheet for Income Tax and NICs
  • P11D - expenses and benefits in kind
  • P32 - payments you make to HMRC

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

Using your records to file your Employer Annual Return (P35 and P14s)

You'll need your records in order to complete:

  • a form P14 End of Year Summary for each employee, showing their pay and deductions for the year
  • your form P35 Employer Annual Return, summarising the total PAYE deductions for all of your employees for the tax year

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.

Go to form P35

Go to form P14

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

Problems with reconciling payment records

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

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Records relating to sickness and sick pay

You'll need to record:

  • how long your employee is off sick - known as 'period of incapacity for work' - or PIW
  • how much SSP you paid
  • the dates when you didn't pay SSP and why

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

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Records relating to statutory maternity, paternity or adoption pay

If your employee takes parental leave or receives statutory pay when they become a parent you'll need to record details of:

  • how much time they take off work
  • the statutory payments you make

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

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Records if you don't need to complete a form P11

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:

  • their name and address
  • how much you pay them
  • the pay period - for example every week, every four weeks, every month

If you're not sure whether you need to complete a form P11 read the guide 'Taking on a new employee'.

Taking on a new employee

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Other staff records you need to keep

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:

  • hours worked
  • pay rates
  • holidays
  • accidents, injuries and dangerous occurrences
  • accounting data
  • crime prevention information
  • pensions data
  • mortgage or insurance administration

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)

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What happens if you don't keep or retain adequate records

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.

PAYE/NIC late payment charges

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What to do if your records are lost, stolen or destroyed

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:

  • Estimated figures - best-guess figures that you want HMRC to accept as final figures in lieu of actual figures as you cannot supply actual figures.
  • Provisional figures - figures you are using until you can confirm the actual figures. You must tell HMRC when you intend to supply actual figures.

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.

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More useful links

Setting up a basic record keeping system - wages book - a BusinessLink guide (Opens new window)

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