With the government’s spending plan reliant on increasing public funds by decreasing the tax gap, Employer Compliance Reviews could be a key focus area for HMRC in 2025.

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The government estimates the tax gap for employer compliance was 0.9% in 2024. While this may seem small, the income tax and NIC collected through PAYE in the year ended 5 April 2025 will be in the region of £420 billion. This makes the 0.9% gap worth almost £4 billion – a significant incentive for HMRC to take steps to improve compliance.

Given responsibility for correctly operating the PAYE system and reporting benefits in kind rests with employers, the cost of getting things wrong, even inadvertently, are high. As is the risk of making mistakes, due to the ever-increasing range and complexity of employment taxation and constant changes to legislation and guidance.

HMRC’s Employer Compliance Reviews are wide-ranging investigations covering many different aspects of employee taxation. HMRC usually carry out approximately 30,000 such reviews every year resulting in employers facing an average bill of £10,000. Being subject of an Employer Compliance Review can be extremely stressful and daunting for businesses and typically involve a review of all the prime records of the business and interviews of key personnel. For this reason, HMRC usually asks for the review to take place at the business premises.

What do Employer Compliance Reviews usually cover?

What do Employer Compliance Reviews usually cover?

Employer Compliance Reviews usually cover (inter alia) the following areas:

• Payroll and the operation of PAYE and NIC;

• The operation of the national minimum wage and national living wage;

• The operation of payments to subcontractors under the Construction Industry Scheme;