Paying your employees promptly and accurately is essential to any business with people on its payroll, after all a happy team equals a happy business.
As an employer, the process of operating Pay As You Earn (PAYE) as part of your payroll will be familiar but entwined with ever-changing employment legislation and penalties for non-compliance, there are many payroll pitfalls leading to all too common mistakes for businesses.
Adhering to HMRC, employers need to complete certain payroll tasks during each tax month and failure to do so can mean fines in the short term and disgruntled employees or loss of trust in the long term.
The good news is that many payroll mistakes are honest and easily avoidable with the right approach, careful planning, good record keeping and up-to-date knowledge.
Missing payroll deadlines
When you’re a busy business owner and the paperwork is often in addition to the day job, it is easy to miss those HMRC payroll deadlines.
If you run payroll yourself, you’ll need to report your employees’ payments and deductions to HMRC on or before each payday. You also need to pay your PAYE bill to HMRC by the 22nd of the next tax month if you pay monthly, or the 22nd after the end of the quarter if you pay quarterly.
With penalty charges issued for employers who fail to file their payroll information via a Full Payment Submission (FPS), or who file it late, this can become a costly mistake for businesses. Penalties range from £100 if you have up to 9 employees to £450 for businesses with 250 plus employees.
Even if you do not have any paid employees you need to tell HMRC by sending an Employer Payment Summary (EPS).
If you are issued with a penalty for missing a HMRC PAYE deadline there are grounds upon which you can appeal but by carefully planning your future submissions, you should avoid any future missed deadlines.
Set regular alerts on your email or phone a few days before each submission date to remind yourself to complete your payroll tasks or outsource your payroll to have someone take care of it for you.
Off-payroll workers (also known as IR35) such as contractors and freelancers are not part of your PAYE and hence their classification needs to be different in your records.
IR35 legislation can change. Check with your accountant if you’re unsure about payroll classifications; it’s so much easier to double-check and get it right the first time rather than misclassifying and having to unravel mistakes.
Making incorrect deductions
When paying your employees through payroll you need to make deductions for PAYE of tax and National Insurance for most employees as well as things like pension contributions.
The PAYE system relies on employers to deduct tax and National Insurance contributions from employees correctly. If an employer deducts the wrong amount of tax or NI, or if they report incorrect information to HMRC, it results in the issuing of a Tax Calculation (P800) which is usually sent directly to the employee. This causes both an administrative headache and can damage trust and relationships between employers and employees.
Using the wrong tax codes
Tax codes determine how much income tax is deducted from an employee’s pay. When the wrong tax code is used the employee can end up paying more tax than they need to – or not enough.
Additional income from another employer or source, allowances, benefits, and expenses can all cause an individual’s tax code to change.
Keeping on top of tax codes for your employees is crucial to ensure that they are paid correctly, and that the right amount of tax is collected by HMRC.
You can call HMRC to check the tax codes of your employees or check with your accountant if you’re unsure about tax codes.
It is essential to keep updated payroll records to meet with General Data Protection Regulation (GDPR compliance). If your records are inaccurate or incomplete, you could face a hefty penalty.
Companies can be audited at any time, and HMRC may request to look at your records to ensure you’re paying the right amount of tax.
Your records should include employee deductions and payments, reports and payments made to HMRC, employee leave and sickness absences, tax code notices, and taxable expenses or benefits.
Payroll software can help with accurate and secure record keeping. Alternatively outsourcing your payroll to a reputable provider (like Chorus Accounting) is often the easiest way to ensure that your business payroll is organised and compliant.
How we can help you with payroll
Administering your payroll can be an arduous and time-consuming task, diverting your time from running your business.
Our comprehensive payroll service will save you time, money, and stress even if you only have a small number of employees.
To find out how Chorus Accounting can help you with your payroll, let’s talk. Call 01202 332500 and one of the team will be happy to help.