TT9: Guard against surprise payroll costs
Payroll compliance is getting more onerous every day. The government is now using the PAYE system to target benefits to individuals, with the employer increasingly being expected to have expert knowledge of payroll compliance.
Don’t get caught out
If you have employees, or are a director of your own company, it is important that you understand the governments requirements to ensure that your exposure to unexpected PAYE and NIC demands, penalties and interest is minimised. Did you know, for example, that the fine for an incorrect P11D could be £3,000 perform?
Barnes Roffe Topical Tips
- Check that your accounting system allows you to identify all items that should be reported for tax purposes. Particularly, have you disclosed all necessary items on your forms P11D, even ones not ultimately subject to tax such as business expense claims.
- A P11D dispensation could save you time completing P11Ds but you must comply with its strict definition.
- Check that your company is not caught in the IR35 net. The government has targeted personal service companies which avoid National Insurance by using dividends to remunerate directors/shareholders. You could owe PAYE and NIC on profits even if you have not taken them out of the company!
- Check that all employees are identified and are subjected to PAYE. Despite some employees’ claims to the contrary, it is your responsibility to decide if someone is employed or self-employed – it is not their decision and any amount untaxed can be assessed on you.
- Make certain all your employees earn the National Minimum Wage. This is applicable to actual hours worked and not deemed hours. Unpaid overtime may lead you into problems. Keep suitable records to prove your compliance, particularly for part-time employees or family members.
- It is important you know how to operate the Working Family Tax Credit and Disabled Person’s Tax Credit. Your payroll system should also allow you to recover Student Loans if required.
- Investigate whether you should use PAYE Settlement Arrangements to deal with minor benefits that have not been declared. This might include items that are difficult to apply to individuals, such as Christmas parties/other staff social events that total more than £75 per individual in the year.
- Evaluate the true cost of the most expensive benefit in kind – the company car. Check all mileage records are completed especially for employees who declare over 18,000 business miles per annum.
- If private fuel is being paid it may be more tax-efficient to claim only buiness fuel. Records must be kept to support this.
- Check that directors have not overdrawn loan accounts with the company or else there could be punitive tax charges.