Ten most common payroll mistakes

For many people managing an efficient and smooth-running payroll system is a daunting and a time consuming prospect. The responsibilities and highly administrative tasks involved, such as paying employees and filling in government forms is stressful and made worse by the constant legislative changes and HMRC guidelines.

So it’s no surprise that payroll errors are a common thing within businesses.  These errors can have a detrimental and costly effect on both staff and the employers. If your business is struggling with the demands of payroll, it can be helpful understanding what kind of mistakes are made and exactly how to avoid them.

Here is a list of 10 of the most common payroll mistakes made by businesses to be aware of.

·    Missing deadlines -  Missing filing deadlines set by HMRC can be very costly for a business. You should mark on a calendar all the necessary dates so you can be sure not to miss them.

     Depending too much on the payroll system used -  The Payroll system used can only be as good as the person using it. Ensure that all relevant data is entered correctly and efficiently, so that the system can calculate everything correctly, and also make sure you update the software each year for new legislation if it isn’t cloud based.

·    Not keeping records -  You need to keep records of Payroll according to HMRC guidelines. HMRC requires all UK businesses to maintain accurate and detailed records for the current and three previous tax years. Not complying with these guidelines can be very costly for businesses and can result in a hefty £3,000 fine

·    Not having adequate backup -  You should always back up your records so that vital information cannot be lost if an error was to occur.  Some payroll systems can do this for you automatically, but if not, always have a backup.

·    Inexperienced staff -  The person doing payroll needs to know how to do it properly. Managing payroll in-house requires highly trained personnel who have the relevant expertise, knowledge and qualifications to ensure payroll is processed accurately and on time. Inexperienced staff may be incapable of complying with current legislation such as RTI and auto-enrolment, and could make incorrect employee deductions.

·    Dealing with statutory payments -  This can be confusing if you do not understand the legislation correctly.  You can find all the information you need on gov.uk

·     Processing payroll late-  Paying your employees late will cause you and your staff a great deal of unhappiness.  It’s one of the main reasons why an employee will choose to leave a company.

·     Using the wrong tax code -  The tax code should come from the P45 or failing that a P46 should be completed but may employers will just use a code they are familiar with, meaning the employee could pay the incorrect tax which could then have a negative effect on their wages.

·    Under/ over payments to staff -  You always need to check exactly what your staff should be paid in that particular period, it’s an error which can be very costly and time consuming to correct. If these payroll processing mistakes persist, you could be seriously affecting staff morale and motivation, causing their motivation and productivity to drop.

·    Year End submission mistakes -  This is normally caused by mistakes during the year but also lack of knowledge of how to complete this process.  This process is now a lot simpler due to the introduction of RTI.

HOW TO AVOID COMMON PAYROLL ERRORS

Choose the right payroll solution

Having the right payroll solution is key to an efficiently ran payroll, make sure you choose a payroll solution that meets the size and shape of your workforce and not get sucked into purchasing costly subscriptions for software or outsourcing prices which aren’t manageable.  The key is to find a supplier who can give you a flexible and tailored solution that is right for you now, but a company that can also grow and develop with your business needs.

Hire qualified staff

If you want to run your payroll system in-house, dedicate time and resources to hiring adequately trained staff who are up to date with current legislation and have the expertise to run a smooth payroll. Regular training is also essential, as although these people may be experts when it comes to payroll, they don’t know how you calculate employees pay as every company is different.  Spend the time training them on this so no mistakes are made. If you employ an outsourced provider, ensure they can provide expert help and guidance so that you’re always on top of payroll legislation and changes, so you can still be in control.

Payroll outsourcing

Payroll outsourcing is an increasingly popular solution for any business that wants complete assurance that their payroll is being calculated correctly. At Chrysalis Payroll we specialise in providing tailored payroll outsourcing solutions, giving you the benefits of a specialised in house payroll department, at the fraction of the cost. With our expertise, software and our dedication to work with you as a company, we can ensure fast, reliable and secure payroll processing which is on time every time, and what’s better, we will even save you time and money.  Go to our Payroll Services page to find out our pricing structure and more.

Minimum Wage Increase, Are you ready?

The National Minimum Wage is set to increase on 1st October, are you ready? 

A wide range of evidence suggests that the National Minimum Wage (NMW) has been successful in raising pay for the lowest-paid workers significantly without damaging employment or the economy.

HM Revenue and Customs have recently investigated more than 700,000 employers and last year it identified £10.3 million in arrears of workers, with some big names including sports direct.  If you don't comply with this legislation you can be set to pay a penalty 200% penalty of the arrears amount.

It's important to remember that the NMW does not take over from the National Living Wage.  The National Living Wage is for workers above the age of 25, and will change in April of each year.  

Announced by the Chancellor in the 2015 Summer Budget, the introduction of the National Living Wage (NLW) will be a potential game changer: the NLW is set at a higher rate of £7.20, increasing hourly pay by 7.5 per cent and 10.8 per cent year on year. The Government aspires to raise it to 60 per cent of by 2020 making it just over £9.

Below are the new rates of the NMW set to take affect in October.

National Living Wage (25+)

From April 2016:  £7.20
1st October 2016 - April 2017:  £7.20

Adult Rate (21-24)                    

From April 2016:  £6.70
1st October 2016 - April 2017:  £6.95

Young Adult (18-20)

From April 2016:  £5.30
1st October 2016 - April 2017:  £5.55

16-17 year old 

From April 2016:  £3.87
1st October 2016 - April 2017:  £4.00

Apprentice Rate 

From April 2016:  £3.30
1st October 2016 - April 2017:  £3.40

Source. gov.uk

The costs if you ignore Auto Enrolment

What happens if you ignore Auto Enrolment?

1 in 10 businesses say they are going to ignore the new legislation surrounding work place pensions, but what really happens if you ignore your Auto Enrolment staging date?

You will be issued with an EPN (escalating penalty notice). Employers who fail to take notice of 28-day warning notices, risk this fine which increases each day.  This means that you could be potentially be fined of up to £500 per day, if you decide to ignore a penalty notice that The PensionRegulator has sent you.

More than 95% of the first small employers required to put their staff into a workplace pension have now complied with the law, showing that Automatic Enrolment is successful for all sizes of employer.  While compliance rates remain high, TPR’s latest quarterly compliance and enforcement bulletin shows that the number of Escalating Penalty Notice is on the rise.

If you have in-between 1-4 members of staff and you don’t take notice of the letters and notices sent to you before the deadline, you will be fined £50 per day. If you employ in-between 5-49 members of staff, you shall see your penalty build up by £500 per day.

My advice would be, don’t ignore these letters, make sure you keep on top of them, and know the two important dates (staging date and declaration of compliance date) and if you do get a fine, pay it as soon as possible.  Every small business is going to see a rise in administration costs due to this change, so keeping them as low as possible is the best way.

If you need help with Auto Enrolment even if its just getting jargon buster so yo know the terminology, then Chrysalis Payroll are here to help – don’t hesitate to call us for advice or assistance, you can find us at www.chrysalispayroll.co.uk/auto-enrolment,  don’t become an Auto-Enrolment Statistic, we want to help you get it right, that's why we are now offering all our Auto Enrolment solutions completely free of charge with any 12 month payroll contract.

Budget 2016

Chancellor George Osborne delivered his eight Budget to The House of Commons, reporting on ‘an economy set to grow faster than any other major advanced economy in the world’ and naming it a ‘Budget for the long term’ but warning that ‘the storm clouds are gathering again’.  The chancellor remains on course to achieve a budget additional of £10.4bn in 2019/20 declaring that the British economy is ‘fit for the future’.

Towards the end of last year, the government issued the majority of the clauses, in draft, of Finance Bill 2016.  Publication of draft Finance Bill clauses is now an established way in which tax policy is developed, communicated and legislated.

Our summary focuses on the issues likely to affect you and your business.

Business Announcements

From 1^st April 2017, 600,000 small businesses won't pay business rates due to the changes made to the system.  The government will permanently double the small business rate relief in England from 50% to 100%.  At the same time, they will raise the small business rate relief threshold in England, business with a property with a rateable value of £12,000 or less will receive 100% relief, while businesses with a rateable value between £12,000 and £15,000 will receive tapered relief.

Corporation Tax

The rate of corporation tax will reduce to 17% for the financial year commencing 1 April 2020. The planned reduction in corporation tax to 19% from 1 April 2017 remains unchanged.

Corporation tax reform of loss relief

From 1 April 2017, companies will only be able to use losses carried forward against up to 50% of their profits above £5 million. If a group, the £5 million allowance will apply per group. With respect to the current streaming rules, the use of losses arising on or after 1 April 2017 will be more flexible, so that the losses will be usable, when carried forward, against profits from other income streams or other companies within a group.

Class 2 NICs for Self Employed Persons

At present a self-employed person in business is required to pay class 2 NI contributions if their profit is over the small profits threshold.  From April 2018, class 2 NIC’s will be abolished and only class 4 NICs will be payable.

Employment allowance

This will continue into the 2016/2017 tax year, and notification is to be done the same way as previous tax years, with it being sent by RTI to the HMRC.  With this being the case, this is the biggest change that I, as an Employer noticed.  Previously if you met the specific criteria to become eligible for Employment allowance you as an Employer could reclaim up to £2000 of your employer’s national insurance bill. There are certain organisations (mainly those in the public service or supplying services to public service organisations) that cannot claim the allowance, if this applies to your organisation you can visit www.gov.uk/employment-allowance to see what can be done.

 Effective from the 6^th April 2016 this is due to increase by a further £1000, allowing employers the right to claim up to £3000.  This extra allowance will be a great help to small and micro employers, not only because of the monetary value but allowing the opportunity to grow and potentially hire new staff.

TAX

There have been some slight changes to tax codes and the bandwidths in the new year, these are as follows;

• Codes with a suffix of L will be increased by 40 points.
• Codes with a suffix of M will be increased by 44 points
• Codes with a suffix of N will be increased by 36 points
• The emergency tax code will be 1100L

All of these changes will take place in the 2016/17 tax year effective from the 6^th April unless a coding notice has been sent by the HMRC.   Unfortunately, most of the bandwidths are to remain the same apart from the basic rate, this will increase by £215.  Below is a table so it’s easier for you to see these changes.

Basic Rate (20%)	£1 to £32,000
Higher Rate (40%)	£32,001 TO £150,000
Additional Rate (45%)	£150,001 above

Scottish Rate of Income Tax (SRIT) In December, the Scottish Government chose not to vary the rate of SRIT to match that of the UK rate, therefore it will remain the same.

NIC

The only change to NIC is the Upper Earnings Limit where we can see another increase;

Lower Earnings Limit	£112 a week
Primary Threshold	£115 a week
Secondary Threshold	£156 a week
Upper Earnings Limit	£827 a week

The Biggest change to National Insurance this tax year is the government backing and promoting apprentice schemes in the UK.  With this being the case from 2016/2017 exemption to employer’s NIC for apprentices under the age of 25 is coming into effect.

This will be very similar to the NIC scheme for employees under 21 which they brought into effect last tax year, with the exemption only applying to earnings up to the upper earnings limit of £827 per week.

Statutory Payments

All the statutory rates remain the same and to qualify you still have to earn over the LEL of £112 weekly. I am a little surprised that they have stayed the same as we do normally see a slight increase each year, these are as follows;

• Statutory Sick Pay-standard rate per week £88.45
• Statutory Paternity Pay-standard rate per week £139.58
• Statutory Maternity Pay-standard rate per week £139.58

Cessation of Contracted-out National Insurance Contributions

For companies with employees in occupational pension schemes where NIC is collected through contracted out NIC tables, mainly table D.  From 6^th April 2016 these tables will no longer be in use.  With this being the case, most employees will be switched from table D to table A.  The effect this will have on your employees, will be a higher employee contribution.  This is because under table D contributions were made at 10.6% whereas table A are made at 12%.

Student Loan

There is also changes to how student loan will be calculated this year, from 6 April 2016, there are two types of student loan repayment plans; Plan 1 and Plan 2.

For any loan repayments due to start from 6 April 2016, the SL1 notification you receive from HMRC will specify which repayment plan the employee is to be on.

Payroll Benefits

If as an employer you provide benefits in kind otherwise known as BIKs to your employees, the way you report this to the HMRC is changing. Benefits in kind can be such things like; company cars and health insurance.  You can now complete a P11D for each employee who receives one of these benefits as normal, or you can now include the cash equivalent value of the benefit in payroll and deduct the required amount of tax.

If you provide benefits in kind (BIKs) to your employees, for example company cars or health insurance, the way you report this to HMRC is changing. You can either complete a form P11D for each employee who receives a BIK, or include the cash equivalent value of the benefit in the payroll and deduct the required tax.

If you wish to record your benefits through payroll instead of completing a P11D, you must register with the HMRC Payrolling Benefits in Kind online service. To be able to do this for the 2016/2017 tax year you must register with the HMRC before the 6th April 2016.

They are the changes that we believe will affect your business, there are many more issues that were addressed, any issues or concerns over these don't hesitate to contact us.

National Living Wage

As you will have no doubt seen in newspaper headlines and Government advertising billboards, which seems to be the way they get these important changes across, there will be a “new” rate of pay, which is to be known as the National Living Wage.

In April the governments new national living wage will become law.   There are a number of elements that have to be included to calculate this new change, including tax and national insurance contributions, wage advances or loans and even the type of work your employee does and your method of payment to them.

There are currently four different hourly rates of National Minimum Wage for different categories of worker:

• Standard rate for workers aged 21 or over: £6.70
• Workers aged between 18 and 20 inclusive: £5.30
• Young workers rate: £3.87
• Apprentice rate: £3.30

From the 1 April this year, a 5^th category of worker will be introduced.  If you are working and are aged 25 or over and not in the first year of an apprenticeship, you’ll legally be entitled to at least 7.20 per hour. That’s an extra fifty pence per hour in your pocket. Chancellor George Osborne has said, “The new National Living Wage is an essential part of building the higher wage, lower welfare, lower tax society that Britain needs.”  The government are determined to increase this each year and its expected by 2020 it is to be in excess of £9 per hour.

The National Living Wage is basically a change to what is already known as the National Minimum Wage.  With this being the case it’s important not confuse this change to a similarity in what is known as the Living Wage.

The living wage recommends that an employer should pay employees what they class as a suitable ‘living wage’ this means that an employee should be able to live on this wage taking into account the cost of living and inflation rates.  The current Living Wage rates are £8.25 per hour for workers across the U.K., with a higher rate of £9.40 for those in London.  Business who pay these rates to employers are able to class themselves as ‘’Living Wage Employers’.

I can understand these different options can be rather confusing for employers, as they both bear very similar names, the important one to focus on is the National Living Wage, otherwise known as NWL.

It is against the law for an employer to pay below either the national minimum wage or the national living wage (when it comes into force in April). If you’re an employer, you’ll need to make sure you’re paying your staff correctly from 1^st April 2016, as the National Living Wage will be enforced as strongly as the current National Minimum Wage.  This new change is going to be enforced strongly by the HMRC and employers can be subject to fines of up to £20,000 for each employee who has been paid incorrectly.  With these fines being of substantial monetary value, it is also a criminal offence not to pay the National Minimum Wage.

With employees from April getting this extra 50 pence in their back pockets, although it doesn’t sound like much this higher rate of pay will have an impact on businesses.  It is estimated that these costs could be in excess of £1.1 billion in the first year alone. As an employer it is important to check and ensure that your records and payroll systems are up to date, but also communicate this change to employees, so that any worker who is entitled to a higher rate of pay receives it from 1 April 2016.

If you have any questions about the National Living Wage and what it might mean for you, please get in touch with a member of our team, you can contact us by calling one of our offices which are found on our website www.chrysalispayroll.co.uk or emailing us on info@chrysalisparoll.co.uk

Legislation Changes 2016-2017

With the new tax year fast approaching, I thought I would give you a summary of all the new legislation changes.  Feel free to print or save a copy for your records.

Employment allowance will continue into the 2016/2017 tax year, and notification is to be done the same way as previous tax years, with it being sent by RTI to the HMRC.  With this being the case, this is the biggest change that I, as an Employer noticed.  Previously if you met the specific criteria to become eligible for Employment allowance you as an Employer could reclaim up to £2000 of your employer’s national insurance bill. There are certain organisations (mainly those in the public service or supplying services to public service organisations) that cannot claim the allowance, if this applies to your organisation you can visit www.gov.uk/employment-allowance to see what can be done.

Effective from the 6^th April 2016 this is due to increase by a further £1000, allowing employers the right to claim up to £3000.  This extra allowance will be a great help to small and micro employers, not only because of the monetary value but allowing the opportunity to grow and potentially hire new staff.

TAX

There have been some slight changes to tax codes and the bandwidths in the new year, these are as follows;

• Codes with a suffix of L will be increased by 40 points.
• Codes with a suffix of M will be increased by 44 points
• Codes with a suffix of N will be increased by 36 points
• The emergency tax code will be 1100L

All of these changes will take place in the 2016/17 tax year effective from the 6^th April unless a coding notice has been sent by the HMRC.   Unfortunately, most of the bandwidths are to remain the same apart from the basic rate, this will increase by £215.  Below is a table so it’s easier for you to see these changes.

Basic Rate (20%)	£1 to £32,000
Higher Rate (40%)	£32,001 TO £150,000
Additional Rate (45%)	£150,001 above

Scottish Rate of Income Tax (SRIT) In December, the Scottish Government chose not to vary the rate of SRIT to match that of the UK rate, therefore it will remain the same.

NIC

The only change to NIC is the Upper Earnings Limit where we can see another increase;

Lower Earnings Limit	£112 a week
Primary Threshold	£115 a week
Secondary Threshold	£156 a week
Upper Earnings Limit	£827 a week

The Biggest change to National Insurance this tax year is the government backing and promoting apprentice schemes in the UK.  With this being the case from 2016/2017 exemption to employer’s NIC for apprentices under the age of 25 is coming into effect.

This will be very similar to the NIC scheme for employees under 21 which they brought into effect last tax year, with the exemption only applying to earnings up to the upper earnings limit of £827 per week.

Statutory Payments

All the statutory rates remain the same and to qualify you still have to earn over the LEL of £112 weekly. I am a little surprised that they have stayed the same as we do normally see a slight increase each year, these are as follows;

• Statutory Sick Pay-standard rate per week £88.45
• Statutory Paternity Pay-standard rate per week £139.58
• Statutory Maternity Pay-standard rate per week £139.58

Cessation of Contracted-out National Insurance Contributions

For companies with employees in occupational pension schemes where NIC is collected through contracted out NIC tables, mainly table D.  From 6^th April 2016 these tables will no longer be in use.  With this being the case, most employees will be switched from table D to table A.  The effect this will have on your employees, will be a higher employee contribution.  This is because under table D contributions were made at 10.6% whereas table A are made at 12%.

Student Loan

There is also changes to how student loan will be calculated this year, from 6 April 2016, there are two types of student loan repayment plans; Plan 1 and Plan 2.

For any loan repayments due to start from 6 April 2016, the SL1 notification you receive from HMRC will specify which repayment plan the employee is to be on.

Payroll Benefits

If as an employer you provide benefits in kind otherwise known as BIKs to your employees, the way you report this to the HMRC is changing. Benefits in kind can be such things like; company cars and health insurance.  You can now complete a P11D for each employee who receives one of these benefits as normal, or you can now include the cash equivalent value of the benefit in payroll and deduct the required amount of tax.

If you provide benefits in kind (BIKs) to your employees, for example company cars or health insurance, the way you report this to HMRC is changing. You can either complete a form P11D for each employee who receives a BIK, or include the cash equivalent value of the benefit in the payroll and deduct the required tax.

If you wish to record your benefits through payroll instead of completing a P11D, you must register with the HMRC Payrolling Benefits in Kind online service. To be able to do this for the 2016/2017 tax year you must register with the HMRC before the 6th April 2016.

As a last little part of this blog, here are some key dates to remember;

6th April - New tax year commences

18th April - The generation of P60s begins

19th April – Final submission of the 2015/16 tax year is due

31st May - Statutory deadline for P11Ds

19th July - Payment of Class 1A NIC due

That basically is your legislative changes for the new tax year.  If you have any further questions about these changes or worried about how you’re going to implement them.  Even if it’s as little as how they might affect you as an employer, we are happy to give free advice, email info@chrysalispayroll.co.uk, to see how we can help.

Auto Enrolment, are you ready?

Over the next couple of years it is said that 1.8 million small and micro companies are due to reach their staging date, with everyone having to comply by 2018.  We are constantly reminded of Auto-Enrolment by a hairy purple monster, that comforts employers on getting it right. Millions have been spent on this advertising involving TV/radio adverts, there are billboards and constant letters from The Pensions Regulator.

Bearing this in mind I was astonished at a statistic I read the other day from an automatic enrolment survey saying 1 in 10 SME’s plan to ignore these legislation changes, whilst a further 11% are still unaware what the word Auto-Enrolment means. 

My first bit of advice would be, know your staging date, you can find this on The Pensions Regulator website, there's even a direct link on our website (www.chrysalispayroll.co.uk) for you under the Auto Enrolment section.  You simply type in your PAYE reference number and it will give you the date that you are due to stage.  So if you haven’t got it, go do it now! Once you know this you can start to plan on what to do next.

Working previously within a well-established payroll provider, dealing directly with customers undergoing these changes, I have had the opportunity to see how frustrating these changes can be if not implemented correctly, so I cant emphasis enough how important this date is.

Realistically getting prepared for Auto-Enrolment should be done 6-12 months before that important staging date, but if you are reading this and you are due to stage tomorrow, don't panic just give us a call and we are happy to help, there's always a solution.

Your duties as an employer will be setting up a qualifying pension scheme, whether that’s amending your existing one or contacting a provider to set up a new one, it needs to be done, then enrolling all your eligible job holders into this scheme. You may find your company doesn’t have any eligible job holders, so you would think I don’t have to undergo AE.   Unfortunately, you do, you still have duties to follow as an employer, you will need to have a scheme in place as you may have workers in your workforce who wish to opt in.  Without doing this initial step you could suffer a pitfall of automatic enrolment right at your staging date.  

Another thing you are going to have to consider is whether or not your payroll software does the job, is your payroll data substantial enough to give you all the information you need, do you know who these eligible jobholders will be, and is it Auto Enrolment compatible?

As you can see there are many things you need to consider before even reaching your staging date and you do need to be aware of the financial impact it will have on your company.  The idea of Auto Enrolment may sound very daunting and feel as if there’s the added pressure to get it right, but don’t worry, there is a lot of help out there, ready to walk you through, and even do it for you.

At Chrysalis Payroll and Accounting Solutions, we aim to take this pressure away from you and give you a stress free solution.  We offer an affordable honest service and would even go as far as classing as ourselves as experts in this field. 

I have been lucky enough to be involved with Auto Enrolment from the get go.  I have had fantastic opportunities within the sector and worked directly with companies who staged from the get go, and have been on-board with them throughout their journey.  I have witnessed the pitfalls and the fall over points of this complex legislation and I'm here to help you avoid them.

My first bit of advice would be, don’t be scared, open that letter from The Pensions Regulator and take that first step to getting right.  Remember, we are all in and there are many people out there to help.