Payroll is an important task that must be completed accurately and on time. An inaccurate payroll system could mean that staff go unpaid and taxes go undeclared potentially costing your business money in unnecessary fines and penalties.
There are many payroll systems by hand or by an in house computerised system to name only a few. Whatever the system in place, there are a few key basic procedures and rules that businesses should be aware of and understand.
Registering With HMRC
If you are a new employer, then the first job you will need to do is register as new business with Her Majesties Revenue and Customs (HMRC). You will be sent a series of information books and guidelines on how to correctly operate a PAYE (Pay as you earn) system and how to calculate National Insurance contributions for your employees.
Tax Deductions
Once the business is registered with HMRC it is necessary to calculate how much tax each employee will be required to pay. This must be calculated accurately and must take into consideration the tax code of each employee, as tax free periods may be apply.
Statutory Payments
As an employer there are several payments that you will have to pay from time to time. Payments such as maternity and paternity leave and sickness pay are required by law. Do not overlook these requirements. Read any information that is sent form HMRC regarding these statutory payments.
Penalties and Fines
As with most tax issues, there are stiff penalties for those who choose to ignore the rules. HMRC can and will impose penalties businesses that do not comply with the necessary regulations. Remember to keep all the necessary records as outlined in the guidelines. Failure to operate the PAYE system or National Insurance contributions correctly can lead to fines being imposed, as will the failure to present all of the required forms on time to HMRC.
This whole process has proved to be confusing and time consuming for many small businesses and sole traders in particular. If this is the case, the best course of action is to consult a bookkeeping service that can set up and mange a payroll systems for all types of businesses, both large and small. This way, all the payments and tax returns will be taken care of each month by trained and experienced bookkeeping professionals, leaving employees paid and the HMRC happy.
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