Preparing for an HR or payroll audit in the United Kingdom
Reviewed by Mellow Editorial Team, HR & payroll content team
An HR or payroll audit in the UK is a structured review of your employment records, payroll calculations and compliance documentation to confirm that you are meeting your legal obligations to employees, HMRC and the Pensions Regulator. Getting audit-ready is largely a matter of keeping the right records in the right order before anyone asks to see them.
What auditors and inspectors actually look at
Whether the review is an internal exercise, an external accountancy check or an HMRC compliance visit, the scope typically covers the same ground:
- Payroll accuracy — that income tax and National Insurance are calculated and deducted correctly for each employee category, and that employer NI at 13.8% is accounted for in full.
- RTI submissions — that a Full Payment Submission (FPS) was sent to HMRC on or before every payday, as required under Real Time Information rules.
- End-of-year returns — P60s issued to every employee by 31 May following the tax year end; P11Ds (for expenses and benefits) filed by 6 July.
- Auto-enrolment records — that eligible workers are enrolled, that the employer is contributing at least 3% of qualifying earnings and that employees' contributions meet the 5% minimum.
- Leave and statutory entitlements — that workers receive at least 5.6 weeks of statutory annual leave (28 days including bank holidays for a full five-day week), and that SSP and statutory family-leave payments have been processed correctly where applicable.
- Employment contracts and right-to-work checks — that documentation exists for every worker, with right-to-work evidence verified and retained.
Getting your records into shape
Start with a records audit before anyone external does. For payroll, you need a clear, retrievable trail: payslips, FPS confirmation receipts from HMRC, payroll journals, and evidence that deductions match the amounts remitted. If you are using payroll software, export a reconciliation report for each pay period in the year under review.
For HR records, check that every employee has a signed contract reflecting their current role, pay rate and working pattern. Under the Employment Rights Act 2025, day-one rights have been strengthened, which means your contracts and onboarding processes need to reflect current statutory entitlements — not terms drafted several years ago.
Keep right-to-work checks in a format that can be produced quickly. The check must have been done before the individual started work, and it must be documented for each person regardless of their nationality.
Common gaps that create audit risk
A few areas produce the majority of findings:
Incorrect NI category codes. Using the wrong NI category code means employee and employer NI has been calculated at the wrong rate. Review the category assigned to each employee, paying attention to under-21s, apprentices, veterans and directors, who have separate rules.
Missing or late RTI filings. Even a single FPS filed after payday can trigger a late-filing penalty. Cross-reference your FPS submission dates against your payroll run dates for every pay period.
Auto-enrolment record gaps. The Pensions Regulator expects you to hold records of every worker assessed, every opt-out notice received and every re-enrolment exercise completed. Many employers hold contribution records but discard the assessment evidence — that is the gap that generates notices.
Expenses and benefits not reported. Benefits in kind that should appear on a P11D are frequently missed, particularly where informal arrangements have grown up over time (private medical cover added mid-year, a company car changed). Reconcile your benefits register against what was actually reported by the 6 July deadline.
Stale or missing contracts. Contracts that pre-date significant legislative changes, or that simply were never issued to a worker, are a recurring finding. A template refresh is not enough — you need evidence that the individual received and acknowledged their terms.
Running the audit itself
A practical approach is to work through each area in a checklist format, assign a responsible owner for each section and set a completion date at least six weeks before any anticipated external review. That gives time to identify gaps and correct them without rushing.
For payroll, reconcile gross-to-net figures for each employee across the year. Confirm that the income tax personal allowance of £12,570 has been applied correctly (where applicable), that basic-rate tax at 20% transitions correctly to 40% at the higher-rate threshold, and that the additional 45% rate applies where earnings require it.
For HR documentation, a simple spreadsheet listing every employee, the date their contract was issued, the date of their last right-to-work check and their auto-enrolment status will surface gaps faster than any narrative review.
After the audit: acting on findings
Document every finding, however minor. Correcting a payroll error often means running an adjustment through RTI — either via an Earlier Year Update if the error relates to a closed tax year, or via the next FPS in-year. Inform affected employees promptly and in writing.
Where a finding affects multiple employees or multiple periods, consider whether HMRC's Employer Compliance team needs to be notified. Voluntary disclosure is treated more favourably than a discovery during an inspection, and it demonstrates that your compliance processes are functioning as they should.
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