Avoiding Costly Payroll Mistakes: A Guide for Accountancy Firms

10 December 2024

Let’s face it—payroll is both crucial and cumbersome. As an accountant, you know how much time goes into ensuring salaries are accurate, taxes are calculated, and deadlines are met. However, one small oversight can lead to penalties, disgruntled clients, and damaged reputations.

• Common Payroll Errors (and What They Cost You)
• Outsourcing: Your Payroll Safety Net
• Why Now Is the Time to Outsource
• Final Thoughts

HMRC levies a penalty of £100 per 50 employees each month for delays in submitting P11D(b). Whether it’s a late submission or a miscalculated tax code, payroll errors can cost your firm and clients dearly. The financial hit can sting, but the loss of trust? That’s harder to recover.

If payroll gives you headaches, you’re not alone. But there are ways to avoid costly mistakes and sail through the payroll season with confidence.

Common Payroll Errors (and What They Cost You)

• Missed Deadlines
  Filing late or missing Real-Time Information (RTI) submissions is a frequent error. Even a single missed deadline could result in fines starting at £100, depending on the number of employees.
• Incorrect Tax Codes
  Assigning the wrong tax codes can lead to underpaid or overpaid taxes, creating extra admin work and potential penalties. A study found that one in three UK workers had incorrect tax codes, often flagged too late. Another study reported that 75% of UK workers on the wrong tax code ended up overpaying HMRC. The wrong tax code payments amounted to an average of £689, leading to a staggering £5.8 billion as a nation.
• Miscalculated Statutory Payments
  Errors in sick pay or maternity leave calculations can cost firms time and result in legal claims if not resolved.
• Payroll Fraud Risks
  Weak internal controls make payroll fraud a lurking threat. This can cost firms up to 5% of their annual revenue, according to global fraud statistics.
• Human Errors in Manual Entry
  Simple typos in spreadsheets or misreported hours can quickly escalate into costly mistakes. These are harder to detect and often require significant resources to fix.

Outsourcing: Your Payroll Safety Net

If payroll feels like a constant uphill battle, payroll outsourcing could be your answer.

Here’s why it works:

• Accuracy: Payroll outsourcing providers specialise in payroll. They handle calculations, compliance, and deadlines, reducing error risks.
• Time Savings: Focus on higher-value tasks like advisory services while your payroll partner handles the grind.
• Cost Efficiency: Avoid the hidden costs of mistakes and reduce the need for in-house payroll specialists.
• Scalability: Outsourcing payroll lets you adjust resources as your clients’ payroll needs grow, especially during the busy payroll season.

Why Now Is the Time to Outsource

With the payroll season approaching fast after the January 31 tax deadline, it’s the perfect time to plan your capacity. HMRC’s rules and regulations aren’t getting any simpler, and with the recent changes to Employment Allowance and NIC in the Autumn Budget, your clients will rely on you to keep them compliant.

Outsourcing payroll services lets you hit two birds with one stone—error-free payroll and a more focused team. Why not start now and give yourself the peace of mind to tackle the upcoming season head-on?

Final Thoughts

Payroll doesn’t have to be a constant source of stress for accounting firms. By avoiding common pitfalls, using the right tools, and outsourcing payroll services when necessary, you can transform it from a problem to a profit centre.

Mitul Soni

Mitul is a highly experienced UK Payroll professional with over 14 years of expertise in payroll processing, compliance, client management, and team leadership. He is recognised for ensuring seamless compliance with UK payroll regulations and building strong client relationships through the delivery of accurate, high-quality payroll services.

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