Understanding PAYE Compliance

The Pay As You Earn (PAYE) system is one of the most closely monitored areas of tax compliance by HM Revenue & Customs (HMRC). Employers are legally required to operate PAYE correctly on all payments to employees and directors, ensuring accurate deductions for income tax, National Insurance contributions (NIC), and statutory payments such as sick pay and maternity pay.

Even a minor error or misunderstanding can lead to HMRC scrutiny, and once an investigation is opened, it can quickly expand to cover payroll processes, benefits in kind, and historical records.

At Holland & Co Chartered Accountants, we have extensive experience representing clients during PAYE compliance checks and investigations, ensuring that matters are handled professionally, efficiently, and with minimal disruption to your business.

Why PAYE Investigations Occur

PAYE investigations can be triggered by a variety of factors, including:

• Discrepancies between payroll submissions (RTI) and tax returns.

• Inconsistencies between reported income and employee data.

• Employer expenses and benefits not properly reported on P11D or P11D(b) forms.

• Delays or errors in PAYE or NIC payments.

• HMRC risk profiling or random compliance checks.

• Anonymous reports or industry benchmarking anomalies.

In recent years, HMRC has increased the use of data analytics to identify inconsistencies across payroll, corporation tax, and personal tax records. As a result, even honest mistakes can trigger an investigation — making professional representation vital.

What an HMRC PAYE Investigation Involves

A PAYE investigation typically begins with a compliance check letter requesting payroll and employment records. HMRC may review:

• Payroll data and Real Time Information (RTI) submissions.

• PAYE coding notices and employee tax records.

• Directors’ remuneration and dividend payments.

• Expense claims, allowances, and benefits in kind.

• Subcontractor arrangements under the Construction Industry Scheme (CIS).

• P11D submissions and Class 1A National Insurance calculations.

• Employment status of workers — particularly where contractors or consultants are used (IR35 considerations).

In more serious cases, HMRC may also seek to interview directors, payroll staff, or accountants to establish the nature of any discrepancies or irregularities.

How Holland & Co Can Help

Our PAYE investigation service is designed to protect your interests at every stage. We act as your professional representative, managing all correspondence and communication with HMRC to ensure that the process remains fair, efficient, and properly handled.

Our services include:

• Pre-Investigation Review – We perform a comprehensive internal review of your payroll and PAYE systems to identify any potential issues before HMRC does.

• Liaising Directly with HMRC – We handle all communications, ensuring that information is presented clearly and accurately to minimise escalation.

• Preparation and Submission of Evidence – We gather and organise all necessary payroll data, payslips, contracts, and documentation in compliance with HMRC requirements.

• Expense and Benefits Reconciliation – We review your benefits and expenses policies to ensure all relevant items are correctly reported on P11D forms.

• Negotiation and Resolution – Where HMRC identifies discrepancies, we work to negotiate fair settlements, mitigate penalties, and avoid unnecessary prosecution.

• Post-Investigation Support – We provide recommendations and system improvements to prevent future compliance risks.

Our approach is proactive, discreet, and thorough — focusing on achieving the best possible outcome while protecting your reputation and minimising business disruption.

Common Areas of PAYE Disputes

Some of the most frequent issues that arise during PAYE investigations include:

• Misclassification of employees as self-employed contractors.

• Incorrect application of tax codes or student loan deductions.

• Unreported or miscalculated benefits in kind (e.g. company cars, medical insurance).

• Late or missing RTI submissions.

• Failure to pay over deducted PAYE or NIC on time.

• Incorrect recording of director’s salaries and dividends.

We have successfully represented many businesses in resolving such disputes, often reducing or eliminating penalties altogether by demonstrating reasonable care, compliance effort, or reliance on professional advice.

Digital Payroll and Compliance Support

We use modern, cloud-based systems such as KashFlow Payroll, BrightPay, and QuickBooks Payroll to maintain full PAYE accuracy and HMRC integration. These platforms enable:

• Automatic RTI submissions.

• Real-time updates of PAYE and NIC liabilities.

• Integrated reporting for P11D and Class 1A NIC.

• Secure cloud storage for audit-ready payroll records.

By integrating these systems into your payroll process, we help ensure compliance, reduce administrative workload, and minimise the risk of future HMRC enquiries.

Protecting Your Business and Directors

An HMRC PAYE investigation can be stressful and time-consuming, with potential consequences including:

• Backdated PAYE and NIC assessments.

• Interest and penalties for late or incorrect submissions.

• Loss of gross payment status under CIS (for construction businesses).

• Possible reclassification of workers under IR35 rules.

Our team provides the expertise, representation, and strategic advice needed to manage these risks and bring the investigation to a swift, favourable resolution.

Contact us today if you have received a PAYE compliance check notice or suspect an issue with your payroll. At Holland & Co Chartered Accountants, we will review your situation confidentially, liaise directly with HMRC, and ensure that your PAYE systems are fully compliant, robust, and future-proof.