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Choosing a payroll system
Any business that takes on employees needs to pay them. As a business owner you need to ensure that your employees are paid the right amount and that payments are made on time. You also need to ensure that PAYE and National Insurance are correctly calculated and paid to HMRC on time. Both functions are essential for different reasons. Payroll systems allow you to keep everyone happy when paying wages. At the end of each year the accumulated information within the system allows year end tax returns to be made more easily.
Background
The larger a business gets the more people it needs to employ. More employees means more wages and more complex tax calculations. As your payroll grows the way you process it needs to develop too. Accuracy is vital as tax codes and bandings change regularly and penalties can accrue for incorrect tax returns.
There are a number of considerations when upgrading your payroll system and we explore some of these below.
Payroll software packages
For the smaller business it is sometimes difficult to justify the cost of using an accountant or a payroll agency to calculate wages. A good initial free resource is the HMRC online facility which can help you calculate National Insurance and PAYE. The site can also help with other tax return calculations such as maternity pay and Statutory Sick Pay. More information at www.hmrc.gov.uk/employers/
There are also a number of software products that a business can buy in order to do their own calculations in house. A list of accredited providers can be found at the HMRC website. It is important to ensure if you process payroll in house that the member of staff responsible is adequately trained in using the software provided.
Payroll services from accountants and payroll agencies
Outsourcing your payroll function to a third party will cost you money, usually a fixed monthly fee. Your own accountant may well be a good place to start as they know your business well and you know you can work with them. If your accountant doesn't provide a payroll service it might be worth exploring whether a payroll agency which specialises in payroll would suit your needs.
Things to look out for when choosing your payroll supplier include:
- Timescales - ensure they can meet your deadlines
- Other Tax Returns - ensure they can deliver P60s P45s and
- P11Ds within regulatory timeframes
- Record Keeping - ensure they will keep all paperwork required for HMRC inspection if this is required
- Costs - ensure that these are clearly outlined and that no additional costs will be incurred
- Growth - ensure your provider can grow with your business
- Error - ensure you have their agreement that they will stand good for any errors in calculation or penalties for late delivery
The right outsourcing solution can benefit your business by reducing employee overheads and improving the accuracy of your systems. Moving supplier can be time consuming and costly so ensure you get it right first time.
Summary
Calculating payroll and tax liability correctly is a vital function in any business. It can also be a complex procedure. A business can either undertake these calculations and returns in house using a software solution or by outsourcing this function to a third party. The benefits of outsourcing are reduced internal overhead costs and normally increased accuracy in calculation. The main disadvantage is the cost of outsourcing.
Further information
You don't need to look much further than the Business Link website at www.businesslink.gov.uk. This website also provides ongoing links to the HMRC web page specifically for employers - www.hmrc.gov.uk/employers/
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