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Payroll mistakes ‘cost businesses over £700m’

News | Payroll errors | Businesses | accountancy

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In the last financial year, payroll errors have cost businesses over £700 million, with underpaid tax relating to individuals who were wrongly declared as self-employed at the root of many of the issues, claims accountancy firm UHY Hacker Young. 

Research revealed that HMRC collected £737.3 million from investigations into employer compliance, with the majority of it relating to self-employment. 

In cases where businesses had declared individuals to be self-employed, when HMRC has decided they should count as employees, the organisations became liable for national insurance payments.

Additionally, in some cases, businesses were also liable to higher tax charges than they would have paid if they had initially declared them as employed.

SME’s in particular were hit hard by a crackdown on payroll tax deductions, which accounted for almost half of the cash collected, despite being responsible for only a tenth of UK payroll.

According to UHY Hacker Young’s head of tax, Roy Maugham, the onus was on the HR team to apply tests to determine who was truly self-employed.

“A lot of cases are grey rather than black or white and tests include whether someone is capable of substituting themselves,” said Mr Maugham.

“Companies used to ask individuals to invoice them through a company name but HMRC is looking at things like: does that person have a pass to the canteen? Are they on the employer’s telephone list?”

UHY Hacker Young believes that much of the underpaid tax is down to genuine errors which suggests that the government needs to simplify its system to help SMEs avoid mistakes.

Umbrella companies, which offer a cheaper alternative to employing full-time staff, have also been a particular problem for SMEs when it comes to payroll tax.

“Those employing flexible workforces or operating as umbrella companies, for example, might find it difficult to determine which box their labour force falls into when it comes to paying tax,” concluded Mr Maugham.


Posted by Jon Aspinell on 20th May 2016

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