Tax Compliance
Tax compliance refers to the employer's obligation to correctly calculate, deduct, and remit taxes and National Insurance contributions to HMRC.
compliance
Category
intermediate
Difficulty
5 min read
Read time
2025-01-15
Updated
Definition
Short definition
Tax compliance refers to the employer's obligation to correctly calculate, deduct, and remit taxes and National Insurance contributions to HMRC.
Detailed explanation
Tax compliance encompasses all employer obligations related to payroll taxes. In the UK, this primarily means operating PAYE (Pay As You Earn) to deduct income tax and National Insurance from employee pay, then paying these to HMRC.
Employers must register with HMRC, calculate deductions correctly, submit Real Time Information (RTI) reports with each payroll, pay HMRC on time, and provide year-end forms to employees (P60, P11D).
Non-compliance can result in penalties, interest charges, and in serious cases, prosecution. Modern payroll software automates much of the compliance burden.
Practical guidance
How it works
Each pay period, employers calculate tax and NI using employee tax codes and NI categories. Deductions are made from pay. RTI reports are submitted to HMRC. Collected taxes are paid to HMRC monthly or quarterly. Year-end forms are provided to employees.
Best practices
Use HMRC-recognised payroll software
Verify tax codes with employees
Submit RTI before or on pay day
Pay HMRC by direct debit
Legal context
Legal basis
Income Tax (PAYE) Regulations 2003, Social Security Contributions Regulations
Jurisdiction: UK
Key provisions
Must register as employer with HMRC
Operate PAYE for employees earning above LEL
Submit RTI reports on or before pay day
Pay HMRC by 22nd of following month (electronic)
Official source
Frequently asked questions
When must PAYE be paid to HMRC?
Monthly payers: by 22nd of the following month (electronic) or 19th (postal). Quarterly payers (average less than £1,500/month): by 22nd after the quarter ends. Direct Debit is recommended for automatic payment.
What is RTI (Real Time Information)?
RTI is the system where employers report PAYE information to HMRC every time they pay employees, rather than at year-end. You submit a Full Payment Submission (FPS) on or before each pay day.
What happens if I make a PAYE error?
Most errors can be corrected through subsequent RTI submissions. If you've underpaid tax, you may owe HMRC the difference. If you've overpaid, you can claim a refund or offset against future payments.
Related glossary terms
Payslip Requirements
Payslip requirements are the legal obligations for employers to provide workers with itemised pay statements showing earnings, deductions, and net pay.
Pension Contributions
Pension contributions are regular payments made by employers and employees into a workplace pension scheme to provide retirement income.
Compliance Reporting
Compliance reporting is the process of generating and submitting reports required by law or regulation, such as gender pay gap reports, pension submissions, and tax filings.