Keep your data clean
A little less negligence, a lot more attention please – to the little details that is. Entering the correct information with regards to an employee’s national insurance, date of birth, address and tax reference can be the difference between passing or failing your payroll submission.
“Having a formal name in there like William instead of Bill is important,” says Mark Paraskeva, CEO of the SME division at IRIS, the accountancy software firm. “When you’ve run payroll and send the data to HMRC, they’ll try and match that up against their records. If they find a mismatch, they will refuse the entry.”
Another common mistake is not including a reference number with income tax and national insurance payments: “with no reference number attached HMRC will not know where the payment came from or which business it pertains to,” says Laura Hughes, training manager for Crunch Accounting, the online accounting company. “They’ll still accept the payment, but as it isn’t tied to your business they’ll issue a late payment fine, thinking you haven’t paid.”
Close attention should also be given to dates. “If entered incorrectly, it means that the date on the payslip will be wrong,” says Bobby Chadha, accountancy expert at Intuit, the financial software company.
Be consistent and methodical
Dealing with numbers and codes and lots of different details might play to the strengths of non-mathematically minded business owners, but having a routine and sticking to it should help simplify the process.
“Setting a template with the tax references from HMRC on your bank account or having a direct debit can save you time and you don’t have to remember to do those things every month,” says Hughes, “If you make the payments yourself you can forget or be taken ill that day, but the payment needs to be made and HMRC will not care if you’ve been unwell.”
Chadha says that consistency is very important. “From the beginning when a new employee joins the business, the P60s and the all the tax codes that are relevant to them should be recorded, for example, on an Excel spreadsheet,” he says. “So when you pay them at the end of each month, the correct information is always at hand.”
Use HMRC-compliant software
Utilising the tools that are available will certainly help ease the process but making sure they’re HMRC-certified is crucial. “There are free HMRC tools such as PAYE systems,” says Hughes. “If you follow them to the letter – enter all the tax references correctly and so on, it should tell you how much you need to be paying whoever or what deductions you need to make for tax and national insurance.”
A proper payroll product should help to take away the complexity but the key here is to ensure that the software of choice is also compliant with RTI (Real Time Information), as this will determine whether the new monthly submissions are a pain or a blessing. “The best software has safeguards built in that won’t allow you to make filing errors and combined with a good bookkeeper you should have nothing to worry about,” Hughes continues.
“Essentially the employer should only need to enter critical info such as the employee’s name, salary info etc, and the product should do all the calculations and take care of everything else,” Paraskeva adds.
Do your research
Tax, for most of us, can be very taxing. Angela Kinghorn, payroll specialist from Henderson Loggie, the accountancy firm, advises owners to at least have an awareness of tax codes.
“They should know what a standard code might look like and where the differences might come in,” she says. “If they give an employee a company car, they should expect to see quite a drastic change in that person’s code. If not, they may want to flag it up with their employees and ask them to check with the HMRC to avoid any under-payment of tax.”
Employers should also be aware of key legislation changes and the dates at which they need to effect these changes. For example, the national minimum wage changes annually on the October 1 and workers will fall into five different age categories. “It is important to note the changes not only in the October pay run but also to keep an eye on employees’ dates of birth during the year,” says Kingham.
Are you ready for RTI?
HMRC has identified that RTI, which was first introduced at the beginning of the 2013/14 tax year, has been a significant change for businesses to adapt to. However, the penalties for non-compliance will be implemented during the 2014/15 tax year, which means employers will need to be make sure that they’re making their payments on time and that the payments mirror what their returns say.
Needless to say, ensuring that your current system can accommodate RTI reporting is essential and following the steps listed above will also stand you in good stead. “There are different free seminars that help and people can attend in order to build their knowledge about the different reporting, timelines and things like that that they need to do,” says Kinghorn.
When you are in need of clarity, Chadha advises that it’s worth speaking with a professional. “The key thing is that at any point where you’re not comfortable with the changes that are happening from a compliance perspective or any moment you feel you don’t have the information you need, you should speak to a professional, the HMRC or a payroll bureau for additional clarification. Don’t wait till just before the start of the new tax year,” he adds.