Content
Under UK statutory payroll legislation (specifically the Income Tax (Pay As You Earn) Regulations 2003 and Social Security (Contributions) Regulations 2001), employers must maintain comprehensive, individual payroll records for each employee across the tax year.
The information to be recorded includes:
- Personal details (full name, address, date of birth, National Insurance number).
- Tax deduction criteria (current PAYE tax code, tax code basis such as cumulative or Week 1/Month 1, and National Insurance contribution category letter).
- The exact employment start and termination dates.
- Gross pay broken down by pay type (basic salary, hourly wages, overtime, bonus, commission).
- Statutory payments administered (Statutory Sick Pay (SSP), Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP), etc.).
- Tax-free expense payments, allowances, and taxable benefits in kind.
- All statutory deductions withheld, including PAYE Income Tax, Class 1 employee National Insurance contributions (NICs), student loan deductions, and pension contributions.
Where enhanced premium rates or allowances (such as unsocial hours, night work, Sunday, or public holiday uplifts) are paid, or where proof of compliance with National Minimum Wage / National Living Wage regulations is required, the underlying hours worked must be evidenced with accurate, verifiable time tracking records. Summary figures in the payroll record alone are insufficient without detailed timesheet or time-tracking substantiation.
Retention
Under HMRC rules and the Taxes Management Act 1970, employers must keep complete payroll, PAYE, and National Insurance records for at least three full tax years following the end of the tax year to which they relate.
However, in accordance with the National Minimum Wage Act 1998, working time tracking records and proof of statutory minimum wage compliance must be retained for at least six years. Furthermore, general company accounting records under the Companies Act 2006 require a six-year retention period. Employers are therefore advised to retain all detailed payroll records, time entries, and supporting documentation for a minimum of six years from the end of the relevant tax year.
Closing
At the end of each tax year (5 April) or upon the termination of an employee's employment, the payroll record is finalised:
- During the tax year: Real Time Information (RTI) submissions (Full Payment Submissions - FPS) are transmitted to HMRC on or before each pay day.
- Year-End Closing: The payroll record forms the definitive basis for the statutory year-end P60 certificate (End of Year Certificate) provided to active employees by 31 May following the end of the tax year.
- Termination: Upon leaving employment, the closed payroll record provides the gross pay and tax details required to issue the statutory Form P45 to the departing worker and to HMRC.
Audit Relevance
Payroll records and their underlying working time and attendance data form the primary focus of HMRC Employer Compliance Reviews (PAYE/NIC audits) and National Minimum Wage investigations.
Failure to maintain comprehensive records or inability to provide contemporaneous time tracking records to substantiate actual working hours, non-taxable allowances, or minimum wage compliance exposes the employer to severe risks, including:
- Retrospective assessments for unpaid PAYE and Class 1 NICs (plus employer NICs).
- Mandatory statutory interest and financial penalties under Schedule 24 to the Finance Act 2007.
- Minimum wage underpayment arrears, statutory penalties of up to 200% of arrears, and public naming by the Department for Business and Trade (DBT).
- Updated on