PAYE has an implications for both employers and employees
If you employ staff, you have legal obligations to HM Revenue & Customs. If you do not fulfill these obligations then you will be liable to significant penalties and interest. Penalties usually arise if you either:
- miss statutory deadlines for paying over tax and national insurance contributions that you have deducted from your employees, or,
- you are late submitting statutory returns to HM Revenue & Customs.
Take care if you provide employees with benefits such as company cars and health insurance. Look out for the following:
- Seemingly unrelated expenditure can be classified as a benefit. For example excessive staff entertaining.
- Benefits attract their own national insurance charge which has to be paid by employers in July each year.
- Benefits have to be declared to HM Revenue on specific returns which must be submitted on time to avoid penalties.
- Small businesses can choose to pay their deductions quarterly rather than monthly, thus helping with cash flow.
- Employers are liable to make their own national insurance contributions based on employees salary levels. This is added to tax and employees national insurance deductions when paid to HM Revenue each month or quarter.
- Employees - make sure you only pay what you owe.
The tax deducted from your salary is calculated by taking away a proportion of your annual tax free allowance from your salary and applying the appropriate tax rate to the difference. Most payroll systems are quite adept at calculating the tax due, but they rely on the tax office to issue a correct code number to quantify your annual tax free allowance. This is where mistakes can be made and your tax bill increased incorrectly.
Simply, the higher your tax code the less tax you will pay.
A few common mistakes are:
- Employers are sometimes slow in sending in details to the tax office when new employees starts employment. This can delay the issue of a correct tax code number, resulting in excessive tax being paid.
- Employees who change their company cars for lower taxed models, or stop using a company car will continue to be taxed based on last tax years information. It is therefore important that HM Revenue is informed as soon as possible.
- HM Revenue will sometimes look to recover unpaid tax in earlier years by reducing your tax code in the current year. This should always be checked to make sure duplicate payments to HM Revenue are not made by you and your employer.
The key to maintaining a correct code number is to make sure that changes are notified to the tax office quickly.
At Your Tax Office we are able to advise our clients regarding all aspects of payroll preparation and compliance. We can, and do, offer a complete payroll service that is a cost-effective, fully compliant and efficient solution.
Need advice? Call us today on 0845 867 9294 or fill out our contact form.