Oct 12
A payroll health check is a structured review of how your business calculates, reports and pays wages, helping identify errors before they become expensive. For owner-managed businesses, it means checking National Minimum Wage compliance, reconciling PAYE and National Insurance, confirming payroll submissions reach HMRC on time, and reviewing directors’ pay, pensions and employee benefits. National Payroll Week 2026 highlighted the importance of payroll professionals and accurate processes. With mandatory reporting of certain benefits in kind beginning in April 2027, autumn is a sensible time to review your arrangements.
A payroll health check reviews payroll records, calculations and reporting procedures to confirm employees receive the correct pay, deductions are accurate and HMRC receives the required information and payments on time.
It should cover wages, tax codes, National Insurance, pensions, statutory payments, benefits, expenses and recordkeeping. An annual review is advisable, alongside regular checks throughout the year.
For many owner-managed businesses, the initial review can be relatively straightforward if records are organised. The important thing is identifying problems before small mistakes accumulate across multiple payroll periods.
Several developments make a payroll review particularly relevant in 2026.
The timetable is explained in GOV.UK’s guidance on reporting benefits in kind.
Work through the main payroll areas systematically, recording any discrepancies and the actions needed to resolve them.
| Area | What to check | Why it matters |
|---|---|---|
| Pay rates | Employees receive at least the applicable National Minimum Wage or National Living Wage | Underpayment can create arrears, penalties and reputational damage |
| Tax codes | Codes reflect HMRC notices and new starters have appropriate information | Incorrect codes can cause excessive or insufficient deductions |
| National Insurance | Appropriate contribution categories, thresholds and directors’ calculations | Errors can create unexpected liabilities |
| Real Time Information | Full Payment Submissions are normally made on or before payday | Late submissions can attract penalties |
| Payments to HMRC | PAYE and NIC liabilities are paid by the deadlines and reconciled | Late payments can result in interest and penalties |
| Pensions | Eligible employees are enrolled and contributions calculated and paid correctly | Non-compliance can trigger regulatory action |
| Statutory payments | Sick, maternity and paternity payments follow current rules | Errors can lead to employee disputes and arrears |
| Benefits and expenses | Current reporting is accurate and preparations for April 2027 are underway | New reporting requirements affect payroll processes |
| Records | Contracts, payslips, employee changes and supporting records are retained | Proper records support compliance enquiries |
The GOV.UK rates and thresholds for employers confirm the following figures for the tax year ending 5 April 2027.
| Item | 2026/27 |
|---|---|
| Employer National Insurance rate | Generally 15% |
| Employer secondary threshold | £5,000 annually |
| Employee primary threshold | £12,570 annually |
| Upper earnings limit | £50,270 annually |
| Employment Allowance | Up to £10,500 for eligible employers |
| Statutory Sick Pay | £123.25 weekly or 80% of average weekly earnings, whichever is lower |
| Standard Personal Allowance | £12,570 annually |
For example, an employee earning £30,000 annually would generally generate employer National Insurance of £3,750, calculated at 15% on earnings above £5,000.
Ten employees earning the same salary would generate £37,500 before reliefs.
An eligible employer claiming the full £10,500 Employment Allowance could reduce that amount to £27,000, assuming no other adjustments or exemptions apply.
Different National Insurance thresholds or reliefs may apply to certain employees, including qualifying apprentices and younger workers.
Company directors have specific National Insurance calculation rules.
Unlike ordinary employees, directors’ National Insurance is calculated using an annual earnings period, although an alternative method can be used during the year with an annual reconciliation.
Businesses paying directors irregular salaries or bonuses should check their payroll software handles these calculations correctly.
Review salaries, bonuses, benefits and deductions with your accountant, particularly where remuneration arrangements change during the year.
Employment Allowance eligibility also needs attention.
A company cannot normally claim it if the only person liable for employer National Insurance above the secondary threshold is a director.
Confirm eligibility before making a claim rather than assuming every employer qualifies.
Minimum wage errors are not always caused by an obviously incorrect hourly rate.
Unpaid working time, certain deductions, required uniforms, training and employees moving between age categories can all create compliance problems.
From 1 April 2026, the National Living Wage is £12.71 hourly for workers aged 21 and over.
The National Minimum Wage is £10.85 for workers aged 18 to 20 and £8.00 for eligible workers under 18 and apprentices.
The apprentice rate applies to those under 19 or aged 19 and over during the first year of their apprenticeship.
Employers should assess actual working hours and pay arrangements rather than relying solely on contracted rates.
Businesses providing company cars, vans, fuel or private medical insurance should prepare for the April 2027 changes.
Speak to your payroll software provider about system readiness, data requirements and real-time reporting.
It is also worth reviewing whether current benefit arrangements remain appropriate and whether employee records contain all necessary information.
HMRC can charge penalties for late Real Time Information submissions.
The HMRC compliance handbook explains that monthly penalties generally depend on the number of employees within the PAYE scheme.
The first late submission in a tax year is generally not penalised, except for certain annual schemes.
Separate penalties apply when PAYE and National Insurance payments arrive late.
According to the HMRC debt management manual, the first late monthly payment generally does not count towards the percentage-based penalty.
Subsequent defaults can attract penalties starting at 1%, increasing through 2% and 3% to 4% for repeated late payments.
Additional penalties of 5% can arise where amounts remain unpaid after six and twelve months, with interest charged separately.
Payroll should be reconciled to accounting records each month.
Management accounts showing salaries, employer contributions, pension costs and outstanding payroll liabilities help directors identify discrepancies early.
Include payroll expenses within your monthly financial KPIs and monitor costs relative to turnover.
Moving to cloud accounting may also improve reporting where payroll systems integrate with the general ledger.
Payroll affects cash flow as well as compliance.
PAYE, National Insurance and VAT payments can create significant pressure when deadlines coincide.
Our guide to HMRC VAT and PAYE direct debits and cash flow explains practical considerations.
Preparing a 13 week cash flow forecast helps identify upcoming liabilities, while addressing customer late payments can improve working capital.
Employers operating across both jurisdictions must consider different payroll requirements.
Irish employer PRSI rates increased from 1 October 2026, while Ireland’s national minimum wage is scheduled to rise to €14.94 hourly from 1 January 2027.
Employers should identify where employees perform their duties, establish the applicable tax and social insurance treatment, and separate euro and sterling employment costs.
Our guide to sterling and euro books explores the reporting challenges.
Professional cross-border accounting and tax advice can help businesses understand their obligations.
If a payroll review identifies errors, investigate promptly, correct affected records and retain evidence of the changes.
Where deliberate manipulation is suspected, such as fictitious employees or unauthorised expense claims, forensic accountants and investigations specialists can examine transactions and supporting records.
If PAYE or National Insurance payments are overdue, review our guidance on HMRC tax debt and contact HMRC to discuss available arrangements.
Unpaid payroll liabilities may indicate broader financial distress warning signs.
Directors should understand their responsibilities, particularly when a company faces insolvency, as explained in director duties during insolvency.
Where appropriate, a company voluntary arrangement may allow a viable business to restructure qualifying debts.
A licensed insolvency practitioner can explain the options, while recovery accountants can help improve cash flow before difficulties escalate.
At least annually, alongside regular reconciliations. Additional reviews are advisable after recruitment, salary changes, software upgrades or changes to director remuneration.
A payroll audit typically covers wages, tax codes, National Insurance, pension contributions, statutory payments, employee benefits, HMRC submissions and reconciliation with accounting records.
HMRC may charge monthly penalties starting at £100 for smaller schemes. The first late submission in a tax year is generally exempt for most employers, although exceptions apply.
From 6 April 2027, mandatory payrolling begins for company cars, vans, associated fuel benefits and employer-provided medical benefits. Most other benefits follow in April 2028, subject to the relevant rules and exceptions.
If you would like an independent review of your payroll arrangements, our team can examine calculations, reconcile payroll records and help you prepare for upcoming reporting requirements.
Contact your nearest office at SCC Chartered Accountants to arrange a payroll health check.
Contact us to find out more about SCC services
NI:
UK
ROI:
Email Address:
Friday
Jun 1
Jan 5
Our award-winning team across our offices in the UK and Ireland collaborates to deliver the highest standards in a fast moving and evolving manner.
