According to a new report, HMRC has been cracking down on payroll errors, and SMEs have been particularly targeted.

In the 2014 – 2015 tax year, HMRC gathered in £737 million from investigations into payroll errors. Of this, more than half (£373.4 million) came from SMEs, despite the fact that smaller businesses accounted for just 11% of the UK’s total payroll. A slightly smaller sum (£363.9 million) was recouped from big businesses, which accounted for 89% of total payroll.

A HMRC investigation can prove costly, disruptive and distressing, while staff payment problems can also damage morale and productivity. It pays to get your payroll right from the start and eradicate errors wherever possible.

Use the right systems 

Payroll and other accounting software can really help streamline the process and minimise the chances of making a costly mistake. Some of the advantages of cloud accounting are that it provides a back-up in case of in-house server failure or another similar catastrophe and ensures the most up-to-date security features are protecting your payroll information.

Understand tax codes

Tax codes can vary for a wide variety of reasons and can often change when an employee’s circumstances change. Basic salary and bonuses, benefits or an outstanding student loan can all affect an employee’s tax code, so it’s important to have the correct information entered into your payroll software and to immediately update any relevant changes.

Get the right advice

Tax affairs for employers can be complicated. If you’re struggling to understand the complexities involved, or simply don’t have the time to dedicate to this area of the business, you might consider outsourcing or temporarily engaging an accountant or financial advisor. It’s also often advisable to contact HMRC directly if you have queries. 

Check the rules on contractors

If you use freelancers or contractors, you should check the rules carefully to ensure they are not considered employees for tax purposes. This can be something of a grey area, but the Government’s website lists a number of factors to help you decide whether a worker should be classed as self-employed and therefore exempt from PAYE.