Charity financial controls and governance | England and Wales
Staff have been paid and the payroll provider has submitted its reports. There can still be an unresolved difference between payroll, the accounts, HMRC and the pension scheme.
A useful monthly payroll review explains the full employment cost, what has been paid and what remains owed. Trustees do not need to recalculate every payslip. They do need evidence that the process is controlled and that unexplained balances are being resolved rather than carried forward.
This is particularly important where payroll is outsourced, employees work across several projects, or one organisation pays staff costs that another should reimburse. Responsibility for the charity's records does not disappear when processing is delegated. [1]
Connect the payroll report to five supporting records
The starting point is the approved payroll report. Compare it with authorised staffing and pay changes, the accounting entries, net salary payments, HMRC records and pension-provider records.
Those records should connect, but the totals will not all be identical. Net pay excludes employee deductions. Total employment cost may include employer National Insurance and employer pension contributions. Amounts owed to HMRC or the pension scheme can include deductions already taken from employees.
A reconciliation should explain those differences, including timing. Simply comparing the bank payment with the salary expense does not achieve that.
HMRC requires employers to keep records of employee payments, deductions, submissions and payments to HMRC. The records should demonstrate accurate reporting. [2]
Make the closing balances understandable
For each payroll-related liability, start with the opening balance, add the current period's amounts due, deduct payments and separately explain adjustments. The closing balance should identify real unpaid amounts and their due dates.
Illustrative example: A pension control account opens at £4,500. The month's employee and employer contributions add £4,700, and £4,500 is paid to the scheme. The closing balance is £4,700. That is not automatically a problem: it may be the latest month's contribution awaiting payment. The reviewer should establish which period it relates to and whether the payment date complies with the arrangement and relevant rules.
By contrast, a balance described only as 'historic difference' gives the board no basis for judging whether employees, HMRC or the scheme have been paid correctly. Give unresolved amounts an owner, explanation and target resolution date. Do not remove them merely because they are inconvenient to investigate.
Confirm that a payment reached the right place
A debit on the charity's bank statement is evidence that money left the account. It does not prove that the payment was allocated to the intended payroll period or pension members.
Check HMRC's account information against the payroll submissions and payment references. Investigate apparent arrears and credits rather than assuming either side is correct. For pensions, compare the submitted contribution schedule, bank payment and provider confirmation, including rejected or unallocated contributions.
Payment dates deserve explicit attention. The Pensions Regulator explains the usual deadlines for employee contributions and the special rules that can apply to first payments. The charity should record the relevant statutory and scheme deadlines, not assume that paying whenever the monthly accounts are finished is acceptable. [3]
Review changes, not just totals
A stable payroll total can conceal an incorrect pay rate, a leaver still included or an unauthorised allowance. Use a changes report covering starters, leavers, salary amendments, bank details, overtime and unusual payments. Identify who authorised each change and who checked it was applied correctly.
Where responsibilities are split between HR, local managers, a provider and finance, specify the handover. For example, who tells the provider that a contract has changed, and who verifies the next payroll? Verbal understanding is vulnerable when people are absent.
Employment-status and unusual-payment questions need separate attention. A reconciliation can show that a payment agrees to the ledger without establishing that its tax treatment is correct. Obtain appropriately qualified advice on material uncertainty rather than treating a balanced account as technical clearance.
Shared staff need an additional reconciliation
If staff work for more than one charity, document the employing entity and agreed recharge basis. Compare recorded staff time or another justified allocation with invoices, receipts and outstanding balances. A recharge should not be confused with a voluntary contribution simply because the organisations know each other well.
Establish who bears employment obligations, who directs the work and who approves changes. The agreement may also need employment, VAT and data-protection advice. Charitable status and a cost-only charge do not, by themselves, settle the VAT treatment. [4]
For the recipient charity, verify that the cost is authorised, relates to its activities and is charged to an appropriate fund. For the paying charity, establish whether amounts owed are recoverable and being collected.
Give trustees an exception report, not unnecessary personal data
The board usually needs total employment cost against budget, an explanation of significant movements, material liabilities and overdue amounts, unresolved reconciliation items and important control exceptions. Individual payroll details should be restricted to those who need them.
Ask for the date the latest reconciliation was completed and independently reviewed, not just a statement that payroll was processed. Where the team is small, an authorised trustee or suitable reviewer can provide oversight, provided they have the information and competence required and are sufficiently separate from preparing or authorising the item being reviewed.
Detailed review effort should follow risk. A payroll with frequent changes, variable hours or several providers requires more attention than a stable one. Any outstanding payment or reporting problem should be addressed promptly; do not wait for the annual audit to make it visible.
A practical first improvement
Choose the most recent closed month. Ask finance to explain the wages, PAYE, National Insurance and pension closing balances in one short schedule, with payment dates and unresolved differences. Then trace one authorised pay change through the records.
That exercise tests both accounting accuracy and the flow of information. It is more revealing than asking whether the payroll software is up to date. Where it exposes a gap, assign the fix to the person who controls that part of the process, with a reviewer who checks the following month's result.
Sources and further reading
Official guidance checked on 21 October 2026.
[1] Charity Commission, Internal financial controls for charities (CC8)
[2] HMRC, PAYE for employers: keeping records
[3] The Pensions Regulator, Making contributions to your pension scheme
[4] HMRC, How VAT affects charities (VAT Notice 701/1)
Frequently asked questions
Do trustees have to check every payslip?
No. They should ensure that suitable preparation, approval and review controls exist and receive enough information to challenge significant costs, liabilities and exceptions. Review depth should reflect the charity's risks.
Does outsourcing payroll remove the need for reconciliation?
No. The provider's responsibilities depend on its engagement. The charity must still understand how submissions, payments and accounting records connect, including any work the provider does not perform.
Should payroll control accounts always be zero?
No. They may contain legitimate amounts awaiting payment. Each balance should be explained by period, recipient and expected settlement, rather than accepted because it is small or longstanding.
What should happen when an old difference cannot be explained?
Investigate the underlying records and external statements, assess whether payments or reporting need correction, and document the conclusion. Do not write it off without evidence and appropriate approval.