HMRC wage raid payroll checks are an informal term for payroll compliance checks and investigations involving PAYE, National Insurance, wages, and employment records. It is not the official name of a specific HMRC programme.
Checks may be triggered by discrepancies in Real Time Information, PAYE calculations, minimum wage payments or other employment records.
While a payroll mistake does not automatically suggest wrongdoing, repeated errors or unexplained payments can attract closer scrutiny.
In 2026, the introduction of the Fair Work Agency has also changed the enforcement landscape, making accurate payroll reporting, worker pay and employment records increasingly important for UK employers.
How Have HMRC Payroll Checks Changed In 2026?
One of the biggest developments in 2026 is the launch of the Fair Work Agency on 7 April 2026.
It brings enforcement of several employment rights into a more coordinated structure, including National Minimum Wage compliance, employment agency regulation and gangmaster licensing. Further responsibilities are expected to be introduced over time.
HMRC still has an important role. PAYE, Income Tax and National Insurance remain part of HMRC’s tax administration, while HMRC is also working in partnership with the Fair Work Agency on National Minimum Wage enforcement.
For businesses, this means payroll should no longer be viewed simply as a monthly administrative task. The records behind each payment may need to demonstrate:
- Correct Pay: Workers received the amount they were legally entitled to
- Accurate Tax: PAYE and National Insurance were calculated correctly
- Accurate Reporting: Employee payments were reported through RTI when required
- Correct Hours: Hours, overtime and other working time were recorded accurately
- Lawful Deductions: Deductions did not incorrectly reduce a worker’s minimum wage
- Correct Status: Employees, workers and self-employed contractors were classified appropriately
The Fair Work Agency’s arrival does not mean every business should expect an inspection.
It does mean that employment rights enforcement is becoming more coordinated and that employers should be able to justify how their payroll figures were calculated.
How Much Can I Pay Someone Without Putting Them On Payroll In The UK?
There is no universal amount that allows every employer to pay someone outside payroll simply because their earnings are low.
For the 2026 to 2027 tax year, an employer generally needs to register for PAYE where an employee is paid £96 or more a week.
Registration can also be required where an employee receives expenses or company benefits, receives a pension, has another job or has received certain taxable state benefits.
The £96 figure should not be confused with the £242 weekly Income Tax threshold or the £129 National Insurance Lower Earnings Limit.
These thresholds serve different purposes. HMRC’s current 206 to 2027 employer payroll rates and thresholds set out the different amounts applying to payroll calculations.
If an employer is already running PAYE, the position is particularly important. HMRC says an employer’s Full Payment Submission should include everyone being paid, even if that person receives less than £96 in a week.
When Must A Worker Be Added To PAYE?
Employers should consider more than the person’s weekly wage.
A worker may need to be included in payroll where:
- Their Earnings Trigger PAYE Registration: They earn £96 or more in a week
- They Have Another Job: Their tax position may require PAYE reporting
- They Receive Benefits: Expenses or taxable company benefits may create reporting requirements
- The Employer Already Runs Payroll: Employees being paid should generally be reported through the employer’s FPS
- Their Employment Circumstances Change: An increase in pay or a second job can alter the PAYE position
An employer that does not currently need to register for PAYE must still maintain appropriate records of payments to employees.
Do Casual, Temporary And Part-Time Workers Need Payroll?
Being described as casual, temporary or part-time does not automatically remove payroll obligations.
A person hired for one day can still be a worker or employee. Likewise, somebody working only a few hours each week may still have minimum wage, a payslip, and employment rights.
Employers should therefore determine the actual relationship rather than assuming that short working hours make payroll unnecessary.
Can I Pay Someone Cash In Hand Without Using Payroll?
Paying wages in cash is not automatically illegal in the UK. What matters is whether the payment has been recorded and whether the employer has met its PAYE, National Insurance, minimum wage and payslip obligations.
A cash payment should not be used to hide employment income.
For example, paying a worker £400 in cash does not remove an employer’s obligation to operate PAYE merely because no bank transfer took place.
The employer should process the employee’s pay correctly, make any required deductions and record the payment.
Employees and workers who qualify for payslips should also receive an itemised payslip. Acas confirms that a payslip can show wages being paid through different methods, including bank transfer and cash.
Employers should maintain records covering:
- Gross Pay: The worker’s earnings before deductions
- Hours Worked: Particularly where minimum wage calculations depend on hours
- Tax And NI: Amounts deducted and reported
- Net Pay: The final amount handed to the employee
- Pay Date: When the wages were paid
- Deductions: Any pension, accommodation, uniform or other deductions
- Payslip Details: Evidence of what the worker was told they had been paid
Cash payments that exist outside the accounting and payroll records are far more likely to create problems during a compliance investigation.
Can I Treat Someone As Self-Employed Instead Of Putting Them On Payroll?
A business cannot simply decide to call an individual self-employed to avoid operating payroll.
Employment status depends on the real working arrangement. Factors such as control, personal service, financial risk, independence and the way work is organised can all matter.
For example, someone described in a contract as a freelancer may still raise employment-status issues if the business controls their working hours, directs how the work must be carried out and expects that person to perform the work personally.
The distinction can also be complicated because tax status and employment-law status are not necessarily determined in exactly the same way.
The CIPD guidance on employment status highlights the differences between employees, workers and self-employed individuals and why correct classification matters.
Where HMRC concludes that an individual should have been treated as an employee for tax purposes, the business could potentially become responsible for PAYE and National Insurance that should have been accounted for.
Businesses using contractors should therefore keep evidence supporting the arrangement rather than relying solely on an invoice or a contract containing the word self-employed.
What Can Trigger An HMRC Payroll Investigation?
There is no single trigger that guarantees HMRC will investigate an employer. Compliance checks can arise from information already available to HMRC, reporting discrepancies, complaints or concerns about particular payments.
Common risk areas include the following.
PAYE And RTI Discrepancies
RTI gives HMRC information about payments and deductions each time payroll is reported.
Potential warning signs can include:
- Late FPS Reports: Regularly submitting payroll information after payday
- Missing Returns: Periods where expected information has not been provided
- Unexplained Changes: Major movements in employee numbers or payroll values
- Incorrect Tax Codes: Persistent payroll calculations using inaccurate information
- Payment Differences: Amounts in payroll records that do not correspond with the employer’s reported figures
An isolated administrative error may be correctable. Repeated inconsistencies are more likely to create questions about the reliability of the employer’s payroll.
Minimum Wage Underpayments
Minimum wage compliance remains one of the most important payroll risks.
From 1 April 2026, the National Living Wage for workers aged 21 and over is £12.71 an hour. The rate is £10.85 for workers aged 18 to 20, while the under-18 and apprentice rates are £8.00.
Employers can make mistakes even where an employee’s headline hourly wage appears to exceed the minimum.
For example, deductions for uniforms, tools or mandatory training can reduce pay for minimum wage purposes.
Acas’s guidance on checking National Minimum Wage pay explains that certain work-related costs cannot reduce qualifying pay below the statutory minimum.
Incorrect Deductions Or Missing Payroll Records
Payroll deductions require careful treatment.
Problems can arise from:
- Uniform Costs: Particularly where these reduce minimum wage pay
- Salary Sacrifice: Arrangements that take cash earnings below the legal minimum
- Training Costs: Especially mandatory employment-related training
- Accommodation: Incorrect use of the accommodation offset
- Pension Deductions: Incorrect contribution calculations
- Overpayments: Recovery being handled incorrectly
- Missing Time Records: Employers being unable to prove how many hours someone worked
A payroll figure is much easier to defend when the employer can show exactly how it was calculated.
What Does HMRC Check During A Payroll Investigation?
The scope of a compliance check will depend on why it started.
HMRC may examine payroll records alongside information already submitted through PAYE. Where minimum wage compliance is involved, working hours and employment arrangements can also become important.
Records that may be relevant include:
- FPS And EPS Submissions: Reports sent through RTI
- Payslips: Gross pay, deductions and net pay
- Payroll Reports: Employee earnings and tax calculations
- Tax Codes: Codes used when calculating PAYE
- National Insurance Records: Employee categories and contributions
- Timesheets: Hours actually worked
- Overtime Records: Additional hours and corresponding payments
- Employment Contracts: Agreed pay and working arrangements
- Holiday Records: Leave taken and holiday payments
- Bonus And Commission Records: Additional earnings
- Expense Records: Payments and reimbursements
- Salary Sacrifice Arrangements: Contractual changes affecting cash pay
- Contractor Records: Evidence supporting self-employed status
The aim is often to establish whether the figures reported by the employer reflect what actually happened.
What Happens During An HMRC Payroll Check?
Not every payroll check begins with officers arriving at business premises.
Many cases start with correspondence requesting information or clarification. HMRC may identify the period being examined and request relevant payroll records.
Initial Contact And Record Requests
The employer may be asked to produce documents supporting payroll calculations.
At this stage, the business should establish:
- Which Tax Years Are Being Reviewed
- Which Employees Or Workers Are Relevant
- What Records Have Been Requested
- What Deadline Has Been Given
- Whether There Are Known Payroll Errors
Records should be preserved in their original form wherever possible.
Workplace Inspection And Further Investigation
Some investigations can involve workplace inspections.
Minimum wage enforcement officers have powers that can include entering premises at reasonable times, interviewing relevant people and inspecting minimum wage records. They can also remove relevant records temporarily for copying.
The extent of an investigation will depend on the issue. A straightforward RTI reporting error is different from suspected deliberate concealment of employee wages.
Findings, Repayments And Penalties
If an error is established, HMRC may calculate additional tax, National Insurance, interest or penalties depending on the circumstances.
Minimum wage cases can result in workers being repaid arrears and the employer receiving a Notice of Underpayment.
An employer should not assume that correcting the payroll record after an investigation begins automatically removes every potential consequence. The nature of the error, how it arose and how quickly the employer cooperates can all matter.
How Far Back Can HMRC Investigate Payroll Errors?
There is no single look-back period that applies to every payroll investigation.
For tax assessments, the normal assessment period can extend to four years from the end of the relevant tax period. Certain situations can extend that period.
HMRC’s compliance guidance provides for longer assessment periods including:
- Four Years: The normal assessment period in many situations
- Six Years: Where a loss of relevant tax resulted from careless behaviour
- Twenty Years: In certain cases involving deliberate behaviour or specified failures
These limits depend on the type of tax and the circumstances surrounding the error. A 20-year period should therefore not be interpreted as HMRC routinely reviewing every employer’s payroll for two decades.
Record-retention requirements are also separate from HMRC’s assessment time limits.
What Penalties Can Employers Face In 2026?
The financial consequences depend on what went wrong.
There is a major difference between submitting an FPS late, making an accidental payroll calculation error and deliberately concealing workers or wages.
PAYE And RTI Penalties
Employers are generally expected to report payments through an FPS on or before payday.
Where an employer repeatedly fails to report payroll information on time, monthly RTI penalties can apply according to workforce size.
| Number Of Employees | Monthly Penalty |
|---|---|
| 1 To 9 | £100 |
| 10 To 49 | £200 |
| 50 To 249 | £300 |
| 250 Or More | £400 |
HMRC generally allows one unpenalised late filing during the tax year for employers that do not operate an annual PAYE scheme. Other exceptions can also apply.
Employers that fail to maintain adequate PAYE records can also face a penalty of up to £3,000.
National Minimum Wage Penalties
Minimum wage penalties can be substantially greater.
Under current enforcement rules, the penalty is generally calculated at 200% of the underpayment, subject to a minimum penalty and a maximum of £20,000 per worker.
The penalty can be reduced by 50% where the employer pays the required arrears and the reduced penalty within 14 days of the Notice of Underpayment.
This means a minimum wage error affecting a large workforce can become expensive even where the individual underpayment for each worker appears relatively modest.
When Can An Employer Be Publicly Named?
Businesses that underpay the minimum wage can also face reputational consequences.
Under the current naming policy, cases where total arrears owed to workers are £500 or more can normally be considered for public naming.
A lower threshold of more than £100 can apply to certain employers with previous enforcement history or other specified circumstances.
Public naming is separate from repayment of arrears and financial penalties.
How Long Must Employers Keep Payroll Records?
Different employment records have different retention requirements.
For PAYE records, employers generally need to retain documents for three years from the end of the tax year they relate to.
These records include employee payments, deductions, HMRC reports, tax code notices, leave information and taxable benefits.
Minimum wage records have a longer retention requirement. Employers generally need to preserve records demonstrating minimum wage compliance for at least six years where the relevant record-retention rules apply.
Keeping only payslips may not always be enough. Employers may also need contracts, time records, overtime information and documentation explaining deductions.
Good payroll records should allow a business to reconstruct how an employee’s final pay was calculated without relying on someone’s memory.
What Should You Do If HMRC Contacts Your Business?
Receiving an HMRC compliance letter does not automatically mean the business has deliberately done something wrong.
The employer should respond methodically.
- Read the Notice Carefully: Identify what HMRC is examining and the period involved
- Check the Deadline: Do not allow correspondence to go unanswered
- Preserve Payroll Data: Avoid deleting or altering original records
- Reconcile RTI Submissions: Compare payroll records against information sent to HMRC
- Check Tax and NI: Review deductions and employee categories
- Review Working Hours: Confirm hours against minimum wage calculations
- Review Deductions: Check uniforms, training, accommodation and salary sacrifice
- Check Employment Status: Review contractors where status could be questioned
- Identify Errors Early: Establish whether a genuine underpayment or reporting mistake exists
- Correct Ongoing Problems: Do not allow an identified payroll error to continue
- Consider Professional Advice: Complex or potentially significant cases may justify assistance from a payroll specialist, accountant or tax adviser
Giving inaccurate information in an attempt to hide an error can create a much more serious problem than identifying and addressing a genuine payroll mistake.
How Can Employers Reduce The Risk Of Payroll Problems?
The most effective approach is to treat payroll compliance as an ongoing control rather than something reviewed only when HMRC makes contact.
Employers should regularly check:
- PAYE Registration: New workers are added when required
- RTI Reporting: FPS reports are submitted accurately and on time
- Minimum Wage Rates: Rates are updated when statutory rates change
- Birthdays: Age-related minimum wage changes are applied
- Apprentices: The correct apprentice or age-related rate is used
- Working Hours: Payroll reflects the hours employees actually worked
- Deductions: Work-related costs do not create minimum wage breaches
- Salary Sacrifice: Arrangements remain compliant
- Employment Status: Contractors have not effectively become employees
- Holiday Pay: Calculations and records are accurate
- Payroll Providers: Outsourced payroll information is independently reviewed
- Record Retention: Supporting records remain accessible for the required period
Outsourcing payroll can reduce the administrative burden, but responsibility does not simply disappear because an accountant or payroll company processes wages.
Employers should review payroll reports before approving payments and investigate unusual figures rather than assuming payroll software will detect every employment-law or tax issue automatically.
Frequently Asked Questions
Do I Need To Put Someone On Payroll If They Only Work One Day?
Possibly. Even a one-day worker may need to be reported through PAYE depending on their pay, employment status and circumstances.
Can HMRC Detect Unreported Employee Payments?
Yes. HMRC can compare payroll submissions with other tax and business records and may request evidence of payments during a compliance check.
Can HMRC Check Payments Made To Freelancers And Contractors?
Yes. HMRC can examine whether a contractor has been correctly treated as self-employed or should have been taxed as an employee.
Can I Pay Someone Cash In Hand Without Putting Them On Payroll?
Cash payments are legal, but they do not remove PAYE, National Insurance, minimum wage or record-keeping obligations where these apply.
How Far Back Can HMRC Investigate Payroll Errors?
HMRC can normally assess errors going back four years, with longer periods possible where careless or deliberate behaviour is involved.
Does Using An Accountant Protect A Business From Payroll Penalties?
Not automatically. Employers remain responsible for accurate payroll information and compliance even when an accountant or payroll provider handles payments.
Can An Employer Challenge An HMRC Payroll Penalty?
Yes, certain HMRC penalties and enforcement notices can be appealed, although the process and deadline depend on the type of decision.
What Happens If Payroll Records Are Missing?
Missing or incomplete records can make it harder to prove compliance and may result in penalties, additional tax assessments or further investigation.
