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How to Avoid Costly Payroll Mistakes

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.

Running a payroll is quite a challenge. It’s easy to regard it as a simple task when in fact an awful lot can go wrong, causing cost and upset employees, not to mention fines from HMRC or the Pension Regulator.

The table below shows some of the errors we’ve inherited with new payrolls, nearly all of which you will need to be on the right side of when running your payroll, whoever does it.

Some tips if you run the payroll yourselves

• Keep up to date with new payroll and employment regulations

Otherwise expensive mistakes can be made. When this involves employees, considerable upset can be caused

• Be accurate

Avoid errors, gaps and mistakes. Don’t pay wrong amounts which can lead to all sorts of issues and complications

• Set it up correctly

This is clearly essential otherwise you’ll risk being wrong, possibly every month and it will catch up with you sooner or later

• Avoid penalties

Observe HMRC deadlines. Penalties from late filing or payroll errors can be surprisingly high. Late means an automatic fine from HMRC which is very difficult to dispute. You need to know exactly what to do and always achieve it

• Maintain good records

You should record everything clearly and keep all the information for the current tax year plus the preceding three. This includes starting and leaving dates, maternity dates, benefits, time and rates of pay

• Check matters affecting the payroll

This includes benefits and student loans which may change tax codes. If not handled correctly there may be costly amendments required, possibly upsetting employees and landing your business with a tax bill

• Avoid paying a contractor when really they are an employee

This can be a tricky area. If you employ freelancers or contractors you need to be conversant with the difficult to understand rules. When might they be regarded by HMRC as an employee and must therefore be on the payroll, subject to PAYE and NIC? HMRC can go back years in claiming unpaid taxes

• Be careful handling childcare vouchers

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 NI savings and employees will be overtaxed