How long do you really need to keep payroll records?

Three years’ worth

The PAYE Regulations require employers to keep their “PAYE records” for a period of not less than three years following the tax year to which they relate. Obviously, you wouldn’t provide HMRC with more than was required so this means that you must keep the current year’s records, plus those for the previous three years.

Example. The current PAYE year is 2022/23 so you would need to keep these payroll records, together with the records for the PAYE years 2019/20, 2020/21 and 2021/22.

What are “PAYE records”?

The PAYE Regulations define PAYE records as:

1. All wages sheets, deductions working sheets, new starter checklists and other documents and records that relate to:

• the calculation of employees’ PAYE income, e.g. timesheets/employment contracts
• any other relevant payments to employees
• the deduction of tax from, or accounting for tax in respect of, such payments, e.g. P45s , coding notices.

2. All documents and records relating to any information which an employer is required to provide on Forms P11D .

Computer records. It’s absolutely fine to maintain the payroll records on computer instead of on paper. In this case, as well as keeping three years’ worth, you must also ensure that the computer records are kept in such a way that an HMRC officer would be able to inspect them.

Other payments. The three-year retention requirement also applies to records relating to NI, statutory payments (SSP, SMP, etc.), national minimum/living wage, payments to construction industry scheme subcontractors and student loan deductions. In summary, all records that are created solely for PAYE and related purposes need to be kept for at least three years.

Furlough payments

While they may seem part of the normal payroll records, records of the furlough agreements with staff including the amount claimed, claim period for each employee, claim reference number and furlough calculations should be kept for six years.

HMRC’s guidance says that employers should retain the written furlough agreement for five years, but HMRC can retrospectively audit all claims so it’s important to keep a copy of all records for six years minimum.

Accounting records

Company law. The problem is that some records that are relevant for PAYE and other payroll-related purposes, e.g. expenses claims, are accounting records and, as a result, they should be kept for the periods defined for accounting records. S.388 Companies Act 2006 requires private companies to keep accounting records for three years from the date on which they are made (it’s six years for PLCs).

Tax law. However, unlike company law, for tax purposes accounting records must be kept for six years from the end of the accounting period. For example, if your company year end is 31 August, you could now destroy any records for the year-ending August 2016 and earlier.

While the retention period for most payroll records under the PAYE regulations is three years as they may also be accounting records, it's recommended that you keep them for six years for tax purposes.