5 need-to-know aspects of payroll

Employee data and communication

Accurate records: Keeping up-to-date records for all employees, including personal details, dates of employment, payments and deductions, benefits and expenses, leave and absences, taxes and National Insurance contributions (NICs), and details of any payroll giving.

Source: Office for Budget Responsibility

Collaboration with HR: Integrated payroll and HR platforms and data can streamline processing of payments, benefits and expenses. It can also simplify record-keeping and aid AML compliance, providing a better overall view to help verify the beneficiaries of payroll transactions.

Accurate, well-structured data can also help to support clients’ decision-making, enabling insights in forecasting and modelling of different scenarios.

Provide a dedicated communication channel: Whether it’s a self-serve portal with the option to escalate to speaking with a real person, or a simple shared inbox with a generic ‘payroll@...’ address, a dedicated channel allows employees to ask questions or raise concerns so that any issues can be addressed quickly.

Redundancy

Rights: Know the legal rights of employees being made redundant, including notice periods, timeframes for payments and entitlements to consultation. Potential redundancies should be discussed as early as possible with affected employees or their representatives, and alternatives to redundancy explored.

Calculations: A termination payment includes statutory redundancy pay as well as entitlements such as holiday pay, any outstanding salary/wages, and benefits such as bonuses. Statutory redundancy pay is calculated based on age, length of service and weekly pay, up to a statutory limit. Clients will need to know their liabilities to ensure good decision-making, and the full termination payment amount should be part of early conversations with affected staff.

Tax on redundancy payments: Statutory redundancy payments up to £30,000 are not subject to tax. Any amount over this limit may be treated as earnings and taxed accordingly. The amount of tax and NIC that needs to be deducted from the final termination payment will vary based on the elements that make up that payment – redundancy pay, wages, benefits and so on. Ensure correct calculations and deductions are made to comply with regulations.

Impeccable record-keeping: In the case of disputes or appeals arising from redundancy, records of procedures being followed are vital. Understand the procedures and keep clear records of having followed them – including the early meetings to discuss alternatives to redundancy.

Anti-money laundering processes

Carefully consider risk: Payroll processing as a standalone service is risky.

“Payroll is often considered a simple transaction to process, rather than a process that requires risk management,” IFA Director of Professional Standards Tim Pinkney recently wrote.

Small firms ought to consider whether it is worth offering payroll processing as a standalone service, as robust due diligence procedures still need to be followed despite the low-value perception of transactional work.

Follow due diligence processes: “That process should involve analysing the payment information for similar bank accounts or similar addresses, and ensuring clients provide proof of right to work and insurance certificates. Even quite small payrolls require the accountant to exercise professional scepticism,” Pinkney wrote.

And the due diligence does not end with the beneficiary – accountants providing payroll processing also need to conduct due diligence checks on the client to understand the source of the funds. All of this is far more manageable if the client relationship extends beyond payroll.

Keep detailed records: Keep payroll and PAYE records for at least three years from the end of the financial year they relate to.

Communicating with HMRC

Timeliness: Communicate in a timely manner with HMRC and educate your clients about the deadlines they need to meet. Ensure that Real Time Information (RTI) submissions reflect changes to income or National Insurance contributions accurately to avoid penalties.

Clarity: Octagon Green’s Upper Tribunal Appeal in a case involving £69 million worth of assessments issued by HMRC, which Financial Accountant discussed last month, is a great lesson in the importance of clear communication with HMRC.

In that case, the ambiguity was HMRC’s, and communication between the business’s accountant and HMRC contributed to the Tribunal’s decision in Octagon Green’s favour.

No accountant wants their client to be on the receiving end of £69 million worth of assessments from HMRC. If a client should face investigation, however, clarity is important.

Expenses and benefits

Establish a clear and detailed expenses policy: Include what expenses are reimbursable, how to claim reimbursement and evidence required. Ideally, employees will be able to upload receipts and documents directly into payroll/accounting platforms.

Educate clients and their employees about the different tax treatment of benefits: Consider creating a simple guide to the tax implications of various employee benefits, and ensure the value of benefits is included in employees’ P11D forms or through payroll if you're using PAYE Settlement Agreements.

Payroll giving: A payroll giving scheme allows employees to donate directly to charities from their pre-tax salary. Ensure these deductions are handled correctly and provide employees with annual statements.

Annual review: A regular review of expenses and benefits policies should assess competitiveness, compliance and cost versus payoff.

 The IFA’s next Payroll webinar is coming on 15 May. Find out more and register.