Are You Operating Your PAYE System Correctly?

One of the aspects of running a business that is likely to come under investigation by the tax authorities is the PAYE system and how it is being operated. HMRC investigators can request access to all of your PAYE and salary records, if necessary,  in order to check that the amount recorded in the accounts as salaries matches the actual amounts paid out as salaries and recorded on payslips.

PAYE system for small businesses

Here are just some of the typical areas that may not be correctly recorded in your PAYE system:

  • Directors’ remuneration
  • Undeclared benefits such as private health insurance
  • Employment of casual workers who may not be taxed
  • Employment of workers incorrectly classified as self-employed
  • Failure to comply with the minimum wage regulations
  • Company cars from a car pool not recorded correctly
  • National Insurance not paid correctly (or at all)
  • Incorrect PAYE code numbers used
  • Excessive expenses

If you are unsure of the correct way to handle any of these issues then talk to your accountant or tax adviser. There is also plenty of information available on HMRC’s website to help you better understand your obligations with regard to PAYE. Don’t assume that everything is being correctly handled simply because you have never had an investigation by the tax authorities.

Also bear in mind that an employee may inform the tax authorities that no tax has been deducted from their salary rather than face a potential fine. If the company has not deducted tax from an individual, who has earned more than the minimum threshold and should be paying some tax, they may wish to resolve this as a personal issue sooner rather than later. This could highlight potential failings in your company’s PAYE system.

What about expenses that are not taxable?

If employees work away from home on a regular basis then hotel or other accommodation costs up to a certain rate per night (depending on whether the location is UK-based or not) do not have to be declared as expenses as no tax is due. This amount allowable is intended to cover more than just accommodation and includes various items such as food, drinks, phone calls etc.

There is also a wide range of benefits that are not liable for tax and you can read more about that in a future blog post.

 

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