The Most Common Payroll Mistakes
Payroll can often be trickier than small business owners initially imagine but having an effective payroll system in place is imperative when it comes to ensuring your business is well organised. Here are some of the most common payroll mistakes made by SMEs when they don’t ask their accountants to handle it for them so make sure you avoid them…
You could find yourself facing huge fines and interest charges if you make a late payroll tax deposit. Unfortunately late deposits are something that happen all too often. Make sure you have a payroll calendar in place to avoid this problem.
Misclassifying Employees as Independent Contractors
Some business owners do this in order to lower the taxes they are subject to. However, as any good accountant will warn you this is illegal and can result in serious repercussions. There are also, of course, those that misclassify employees through genuine error, because there are a growing number of freelancers, consultants, temporary employees etc., which results in confusion when it comes to tax classification. If you are in any doubt about the tax treatment for someone who does work for your company then talk to a chartered accountant.
Failing to Treat Childcare Vouchers Correctly
A lot of businesses are missing out on a National Insurance saving whilst their employees are being over taxed because they are not treating childcare vouchers correctly when it comes to payroll. You need to ensure your payroll provider, whether in-house or outsourced, knows that a part of your salary sacrifice scheme is childcare vouchers and, therefore, they need to be deducted from an employee’s gross salary before tax.
Using Incorrect Tax Codes
Another one of the most common payroll mistakes is using the wrong tax code. A business will be provided with a tax code that is issued by HMRC for each individual’s tax deductions. If you use the wrong code for one of your employees they may end up making an underpayment and could be faced with a large bill in the new tax year to pay back the money owed.
Entrusting An Amateur
Some small businesses view payroll as a simple bookkeeping process and, therefore, they don’t give much thought to who is left in charge of the task. However, your employees’ pay certainly should not be left in the hands of a novice; you need an experienced accountant or, at the very least, someone who has a very good working knowledge of the PAYE tax system to avoid problems arising.
Poor Record Keeping Leads to Payroll Mistakes
Most accountants will tell you that the majority of mistakes made by companies are the result of one thing – they have not been keeping their records effectively. Because of this, payroll errors can easily arise due to incorrect data entry. Ensuring your record keeping is both accurate and up to date will go a long way towards avoiding errors.
Errors such as these can all have a detrimental impact on your business. However, they can all be easily avoided providing you have an effective payroll system in place and your business is well organised. As payroll systems have become increasingly complex for small businesses to handle it is always advisable to use a competent accountant such as Tuchbands in order to avoid the mistakes described above.