In a nutshell, audit-friendly payroll is compliant, transparent and well-organised. Inefficient or inaccurate record keeping causes major problems.
A visible audit trail is vital so you can easily access data from months, or even years, ago. Whether you have paper records, or data is centrally cloud-hosted (the latter is highly advisable), accountability should be clear, i.e. who worked on payroll, what changes they made, and when.
There are time limits in which to supply information to HMRC and you need to be able to access payroll data quickly - and possibly while you and your team are working remotely, as has been the case for most of this year. In an ideal world, your records will satisfy HMRC and no further action will be required. However, if your payroll is not satisfactory, the consequences can be grave and costly. It is recommended to have expert advice on hand to contest or negotiate (where possible) HMRC decisions to reduce the impact on your people and organisation.
In the case of non-compliance, discrepancies or failure to account for tax, HMRC will usually calculate the lost tax and NIC over a period of six years (or longer if they suspect that deductions have been knowingly withheld) plus the current year. Additionally, organisations face penalties and interest, depending on the circumstances including the seriousness of the discrepancy and the attitude and integrity of the employer.
HMRC can seek penalties and interest if you fail to make appropriate tax returns or claim excessive tax repayments. You will also be flagged to be audited again to check your procedures are compliant moving forwards. Audit failures can result in brand damage - internally and externally - disengaging employees and stakeholders. They are also highly stressful.