Everyone makes mistakes, and business owners know that more than perhaps anyone else in the world. Their mistakes can be big ones indeed. But it’s the smaller ones that are bringing in the cash for HMRC at the moment.
Small and medium businesses in the UK account for around 11% (or £96 billion) of the UK’s total payroll bill. The rest is made up by large businesses, and that 89% equates to £726 billion. Despite this, payroll mistakes meant that SMEs actually ended up paying more than half of the final additional total tax bill – handing over an extra £373.4 million (whereas the larger companies ‘only’ had to pay an extra £363.9 million).
The reason? Mistakes made when calculating payroll.
So smaller and medium businesses are clearing having more problems when it comes to getting their payroll right the first time than their larger counterparts. This could be due to the tax system in the UK being a complicated one that favours companies who can put more time and effort into the process in the first place. And that would be the big companies who can employ someone (or more than one person) to deal solely with payroll. In SMEs, that someone is, for the most part, also wearing a number of different hats, and is often the company owner to boot. In other words, they are supremely busy, and don’t have the time to spend on ensuring that their payroll is done perfectly. It’s rather a catch 22.
Another issue is that flexible workforces and umbrella companies can mean it is difficult to work out exactly how much tax each person – and the company – owes. HMRC understands this but, rather than simplifying a complicated tax system (ask any account and they will agree with that statement) they are using the confusion to gain more revenue. They are honing their ability to spot errors, and are quick to carry out an investigation if they see something strange in any payroll returns. An investigation like this can be extremely disruptive to SMEs who may have to completely shut down whilst it is happening.
The third reason that so many of the smaller businesses are falling foul of HMRC’s wider reach, and are making more errors is that they will not (or cannot) spend any of their budget on tax advice, which can be pricey. But is it as expensive as having to pay the missing tax plus a fine on top? Probably not.