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Costly Payroll Mistakes and How to Avoid Them

Posted on February 25, 2020

It’s often a struggle fitting in the payroll processing but clearly it’s important to avoid mistakes which can quickly lead to staff problems and significant fines.

Here are some of our experiences:

Examples of payroll and auto enrollment problems

	Specific inherited errors - Payroll	How we resolved

Client 1	Incorrect pay submissions to HMRC Pay components set up incorrectly Attachment of earnings incorrectly deducted	Corrected all issues and submitted revised info to HMRC
Client 2	Non-filing penalties, fines etc. (5 schemes)	Brought all PAYE schemes up to date and successfully appealed 16 penalties
Client 3	5 incorrect annual payrolls run for Director only businesses Incorrect treatment of CIS.	Reran and resubmitted Ensured robust reporting processes in place going forwards. Successfully appealed penalties.
Client 4	Claim of Employment Allowance had been wrong, the company was deemed to be in a group therefore should not have claimed	Ensured that HMRC was notified to remove the claim.

	Specific inherited errors - Auto enrolment	How we resolved
Client 5	NHS pension contributions were being incorrectly calculated	Historic analysis and re-calculation provided to client, outstanding contributions paid to pension provider
Client 6	Pension scheme had been set up incorrectly leading to under deduction of contributions across 2 tax years. Previously reported to the Pension Regulator as contributions had not been uploaded to the Pension provider	Reviewed, analysed and corrected all members and employer contributions
Client 7	Unable to add a payroll to TPR for re-declaration	Called the TPR, found that they submitted a Declaration of Compliance in June 16, then filed an exemption which is why the system didn’t allow a re Declaration. TPR needed to re-activate them.

Not specific but common errors	Consequences

Directors set up incorrectly as employees	NI incorrectly calculated
Wrong SMP information given	Wrong amounts paid, wrong ending dates etc.
Employment Allowance not claimed or wrongly claimed	Not claimed or incorrectly claimed
Not informing us of leavers in the current year	End of year figures then inconsistent with HMRC
Tax codes not uplifted for the current year	Wrong tax calculations
Pensions being calculated incorrectly re tax relief, e.g. pre-tax when it should be post tax or opposite	Double tax relief to employee, or no tax relief at all
Pensions being calculated on full salary when it should be on qualified earnings only	Wrong calculations for employees and employers

Some suggestions if you run the payroll yourselves

• Set it up correctly

An essential requirement otherwise you’ll risk always being wrong and it will catch up with you some day.

• Keep it accurate

This may sound obvious but we’ve seen many examples of slackness, errors, gaps and issues. It’s surprisingly common for the wrong amounts to be paid which can lead to all sorts of issues.

• Keep up with changes in payroll and employment laws

Otherwise costly mistakes can be made. When this affects employees, considerable annoyance or even upset can be caused.

• Avoid penalties

Keep to HMRC deadlines. Penalties from late filing or payroll errors can be high and nowadays there’s no scope for being late with payments to HMRC. You need to know precisely what you are required to do and stick to it, all the time.

• Keep track of employee matters affecting the payroll

Such as benefits or student loans which may change their tax code. If these are not dealt with properly there may be some costly amendments, possibly upsetting employees and facing your business with a tax bill.

• Avoid paying a contractor when they are really an employee

If you employ contractors or freelancers you need to understand the rules. When might they be regarded by HMRC as an employee and must then be on the payroll, subject to PAYE and NIC? Unfortunately, HMRC can go back years in claiming unpaid taxes.

• Keep good records

You should be disciplined in recording everything clearly and keep all the information for the current tax year plus the preceding three. Examples include starting and leaving dates, maternity dates, benefits, rates of pay, time.

• Handle childcare vouchers correctly

If these are through a salary sacrifice scheme then they need to be deducted from gross salary before tax. If not then you will be missing out on National Insurance savings and employees will be overtaxed.

This entry was posted in Payroll and tagged in Payroll by Caroline

Horses for Courses – why would Accountants handle bookkeeping?

Posted on January 6, 2020

Now we’ve had our 25th birthday I think I can afford to comment on our relationship with firms of accountants which we are not even though our Team includes eight qualified accountants. We’re purely what it says on the tin - bookkeeping with management accounts + a payroll bureau.

All our clients have their own external accountant with whom we liaise at the year end. We also win new client referrals from some firms. We can see a great range in their attitude to ‘wanting’ to handle bookkeeping - this varies from absolutely no wish whatsoever though to being keen to provide.

So where do the horses come in? Well, if you are a firm of accountants, do you have the right horse, or should you focus on a different course? To put it another way - why would you be interested? Is it really improving profits or is it just turnover?

Some months ago, we proposed to a £1m business. They were a very good fit for our service. They liked our proposal and showed it to their accountants who quickly undercut our fee. The prospect thought that it sounded like a good idea, a one stop shop at lower cost, so we lost it. I couldn’t help commenting to the prospect at the time that the chances were that it wouldn’t work out.

Some 4 months later the prospect told me – “You were right. They’ve never got to grips with data communication, scanning, or a routine and despite charging us for management accounts we’ve never received any”. So we now have a chastened new client.

So why did they do it and why didn’t it work out?

I guess they did it because of some combination: they didn’t want to say no, thought the client might leave them and they wanted the billings.

I would say it didn’t work out because they were not set up or resourced to ‘do a good job’, including management accounts which we find is often missing.

So, what would we suggest to a firm of accountants? The key point is to check the course. Are you really geared up to win that sort of race otherwise why not concentrate of what you are good at which is a different race.

By the way, have you noticed how progressively it’s becoming more and more difficult to recruit quality staff - all the more reason to harness them to much more profitable work, which is what they prefer doing anyway, rather than book-keeping.

Do you have the Horse for the (Book-keeping) Course?