Getting your payroll in order

Payroll and employment legislation is changing all the time and compliance is not optional, so it is important that businesses get it right from the outset.

Making simple errors in payroll, which is a key administrative function, can result in significant penalties and business owners potentially missing out on employment benefits that could run into thousands of pounds every year.

Updating annual tax codes, complying with National Minimum and Living Wage regulations, and calculating holiday allowances are three areas where businesses can fall foul of the legal requirements placed on them.

Other common mistakes are often made when deductions are made incorrectly for tax and National Insurance purposes to employee salaries, as well as tax and NI payments when staff leave the business, or their contract is terminated. Salary sacrifice can also be a problematic area for business owners, as well the automatic enrolment, setting up and correct processing of staff pensions.

Making errors presents a real risk and could lead to hefty liabilities and potential investigations by HMRC if they are not handled correctly. By taking the right steps at the right time, they could easily be avoided, so it is a good idea to review payroll processes on a regular basis.

Changes to National Insurance

The recent announcement on National Insurance is a good example of where keeping up to date with the latest changes is imperative.

Last week the government confirmed plans to reverse the 1.25 per cent rise in National Insurance contributions. In April this year, NI contributions were increased by this amount for both employees and employers, but this will be scrapped on 6 November. The increase in the threshold, which came into force in July, will remain the same.

There is an advantage to this decision – there is an obvious saving to both employees and employers and, of course, it benefits those that earn more; the more you earn, the more you save.

As well as this, subject to eligibility, employers can benefit from a higher recovery rate towards their statutory payments from HMRC which they can offset against National Insurance payments – these are small employer relief and employment allowance, which can often be missed.

Employment Allowance

Eligible businesses could receive thousands of pounds each year from Employment Allowance – a benefit designed to support smaller employers reduce their National Insurance liability by up to £5,000 per year* (from 6 April 2022).

Certain criteria applies and eligibility rules changed in 2020, so employers must apply each year for the allowance. However, this can be backdated for the previous four years, which could mean a substantial benefit of up to £18,000 plus £5,000 for the current year.

Auditing and outsourcing payroll

It is recommended that small businesses audit their payroll at least once a year, prior to the end of the tax year and medium to larger businesses more regularly. By doing this, it can help to avoid common mistakes.

Accurately running payroll is one of the most important tasks in running a business and outsourcing can provide several benefits. It reduces the risk of mistakes being made and ensuring PAYE submissions are filed accurately and on time, reducing the risk of penalties.

Westcotts has a dedicated payroll team of experts and specialists who can offer businesses a comprehensive ‘health check.’ If you have questions about any aspect of your payroll operation, please get in touch with me.