HM Revenue and Customs (HMRC) appears to be increasing its focus on National Minimum Wage (NMW) compliance, at a time when responsibility for enforcement is also due to move to the new Fair Work Agency from April 2027. Together, these developments make now an ideal time for employers to review their payroll processes and working practices.
While these calls are not, in themselves, formal investigations, they can lead to more detailed enquiries if HMRC identifies areas of concern. Recent industry commentary also suggests HMRC's geographical compliance campaign is now moving into the Home Counties, reinforcing the importance of employers reviewing their National Minimum Wage compliance before HMRC comes knocking.
Damon Tunnicliffe, Head of Payroll at Duncan & Toplis, said: "Over the past few weeks, we've seen a noticeable increase in clients contacting us after receiving correspondence from HMRC about National Minimum Wage compliance. In each case, HMRC has requested an initial support call to better understand the business and its payroll processes.
"These calls are intended to help HMRC build a picture of how employers operate, but they also provide an opportunity to identify potential areas of risk. We've found that getting involved from the outset allows us to support clients through the process, answer HMRC's questions and, where necessary, address any issues before they develop into something more significant."
From our recent experience supporting clients through these discussions, HMRC's questions have followed a consistent pattern. They typically focus on understanding how a business operates, how employees are paid and whether working practices could inadvertently result in National Minimum Wage underpayments.
Topics discussed have included:
Damon added: "HMRC has confirmed to us that businesses may be selected for review for a variety of reasons, including employee or third-party complaints, geographical campaigns or because they operate within particular industries. Receiving a letter doesn't necessarily mean HMRC believes something is wrong, but it does mean employers should be prepared to demonstrate that their processes are robust."
Alongside responding to complaints and targeting particular industries, HMRC is increasingly adopting a geographical approach to National Minimum Wage compliance, focusing on specific regions before moving on to the next. Recent industry commentary suggests the latest phase of this programme is expected to focus on employers across the Home Counties.
While receiving a letter does not necessarily indicate a compliance issue, businesses in these areas may wish to take the opportunity to review their payroll processes, record keeping and working practices before any contact from HMRC.
Damon said: "We've seen first-hand how these campaigns operate. Employers are often given the opportunity to review their own arrangements before HMRC undertakes a more detailed examination. That's a valuable opportunity, but it's always better to identify and resolve any issues before HMRC gets in touch.
Our discussions with HMRC suggest that several issues continue to arise during compliance reviews.
These include:
National Minimum Wage legislation is more complex than simply paying the correct hourly rate. The way employees are paid, the deductions made from their wages and the time they spend working can all affect whether an employer is compliant.
A proactive review can help identify potential issues before HMRC raises them, giving businesses time to make any necessary changes and demonstrate that appropriate controls are in place.
Damon said: "Most employers want to do the right thing, but National Minimum Wage compliance isn't always straightforward. Small operational practices that seem insignificant can sometimes have unexpected implications.
"Our advice is simple: if you receive correspondence from HMRC, don't ignore it. Seek advice early. It's far easier to review your processes at the beginning of the conversation than to try and resolve issues later."
The way National Minimum Wage compliance is monitored is changing. From April 2027, responsibility for enforcing the National Minimum Wage will transfer from HMRC to the new Fair Work Agency, bringing together a number of existing enforcement functions under a single body.
While the full operational approach is still being developed, the new agency is expected to take a broader role in enforcing employment rights, with National Minimum Wage compliance forming a key part of its remit. This could lead to a more joined-up approach to inspections and enforcement, placing greater emphasis on employers having robust payroll processes, accurate records and clear evidence of compliance.
Damon added: "Although HMRC currently remains responsible for National Minimum Wage enforcement, employers should already be thinking ahead. The introduction of the Fair Work Agency is likely to increase the focus on employment compliance more generally, making it even more important for businesses to review their payroll processes, policies and record keeping. Taking action now will put employers in a much stronger position when the new regime comes into effect."
Our payroll specialists regularly support businesses through HMRC National Minimum Wage enquiries, helping employers understand what information is required, review payroll processes and identify any areas that may need attention. With HMRC continuing its geographical compliance campaigns and the introduction of the Fair Work Agency on the horizon, now is an ideal time for employers to review their payroll arrangements, identify any areas of risk and address potential issues proactively.
If you have received correspondence from HMRC, or would like reassurance that your payroll processes meet the latest National Minimum Wage requirements, please get in touch or contact your usual Duncan & Toplis adviser.
