Running payroll that’s compliant with UK tax regulations and laws is a delicate balancing act–and there are severe consequences if you get it wrong. Many organisations prefer to outsource this aspect of their business instead.
By outsourcing, businesses can ensure the smooth running of their payroll, meaning their people get paid on time, every time. They’ll also get peace of mind that they’re compliant with HMRC’s complex, ever-changing rules.
Ensuring tax compliance: how outsourced payroll services keep your business on the right side of the law
Tax payroll compliance in the UK is following rules and regulations dictated by HR Revenues and Customs (HMRC) to ensure you pay the right amount of tax. Compliance also requires keeping accurate, up-to-date records and responding quickly to messages or requests from HMRC. Failure to comply could lead to penalties or legal consequences down the line.
The easy solution is outsourcing your payroll to a third-party solution to stay on the right side of the law,
Business owners who value their time and want to ensure compliance will often outsource payroll. A full-service provider will manage most of their payroll responsibilities, from wage calculations to tax withholdings, deposits, and reporting.
Payroll providers stay up-to-date with complex, always-changing HMRC regulations so employers don’t have to. They’ll also manage all the paperwork needed for compliance.
The complexities of tax regulations
The world of business regulations is complex, and these complexities provide big challenges for organisations. Tax laws change throughout the year and with every budget, meaning the goalposts are always changing on what constitutes compliance. This requires companies to self-educate, be switched on, and act quickly to necessitate any changes.
If you want to minimise your tax liability, optimise your financial planning and secure your organisation’s long-term sustainability, then outsourcing might be the best solution for you.
Manual payroll can create false calculations and data entry is ripe for human error, which runs the risk of being non-compliant. Adhering to multi-national legislation adds another layer of complexity for international firms.
Non-compliance can result in significant financial penalties, legal consequences, and the risk of reputational damage to your organisation. Audits can be a long, lengthy process that is incredibly time-consuming and admin-heavy.
Managing your tax correctly ensures compliance. It also means your people are paid correctly and on time. This increases employee morale, which can help give you a competitive edge in the market.
Expertise in tax law
Access to knowledgeable professionals with real-world tax law expertise is paramount to a healthy payroll system–and crucial for compliance. Experts often have decades of experience and can guide you through the complexities of tax legislation, provide valid interpretations and suggest easy, practical solutions.
Tax professionals undergo continuous training and education to stay on top of HMRC’s ever-evolving legislation and guidelines. An outsourced payroll provider needs to provide assurance to their customer. Part of this assurance is knowing that the professionals who manage your payroll are proactively up-to-date with compliance management, will anticipate any updates to tax legislation and will undergo a continuous review of your processes, minimising any risks of non-compliance for you or your business.
A proactive approach to compliance management goes beyond managing your payroll. It requires always-on expertise, continuous training, and years of theoretical and practical knowledge to keep your business safe.
Automated tax calculations and reporting
Businesses use payroll software to calculate the correct amount of pay, automate payroll tasks, and process employee payments. Usually, these will come with built-in tax calculator features that automatically deduct income tax, National Insurance contributions, pension contributions, and any other withholdings such as travel allowances, benefits, and profit shares.
HMRC’s Making Tax Digital (MTD) demands that businesses keep timely and accurate digital records and use compatible software to submit tax returns online, which improves accuracy and efficiency. Using payroll software, you can use real-time dashboards to track your tax obligations throughout the financial year, which helps you stay on top of financial planning and forecasting.
Using payroll management software or outsourcing to a third-party solution helps you control your tax obligations and keeps you up-to-date on tax rates and changing rules. What’s more, you’ll get total oversight of the process to avoid any discrepancies that lead to non-compliance later on.
Adherence to filing deadlines
Outsourcing to a third party will effectively make them your payroll department. They take a laser-focused approach to tax regulations and data protection requirements, ensuring you stay on the right side of the law.
They’ll also monitor and track tax filing deadlines for you and ensure your accounts are filled on time and in accordance with Making Tax Digital (MTD), eliminating the need for a dedicated in-house payroll team.
A professional outsourced payroll provider will submit your quarterly summary data, EOPS (End of Period Statement), and final declaration for you. This ensures that everything is calculated correctly and filed on time, saving you time and avoiding the risk of financial penalties for miscalculations.
Comprehensive tax deductions and withholdings
Outsourcing payroll removes the administrative burden of calculating tax deductions and withholdings, giving you a better oversight of your tax obligations.
They’ll account for tax codes and deduct taxes, benefits, pensions, national insurance contributions, and pension contributions, withholding these from employees' pay. Once deducted, they’ll remit these taxes to HMRC, ensuring your company stays on top of its legal requirements.
Outsourced payroll services are always up-to-date with changing tax laws. They’ll make sure that your tax withholdings for employee benefits (such as health insurance) are calculated accurately and consistently. That also involves allowances like travel, which can be incredibly time-consuming and complex to manage. They’ll calculate this comprehensively, freeing up time for you to focus on your business.
Ensuring employee classification compliance
As an employer, you must properly classify your workers according to HMRC’s laws around ‘disguised employees.’ Off-payroll working (IR35) means determining a worker’s status and adhering to these strict guidelines.
If an employee is expected to engage in day-to-day tasks and is required to work in the office at certain times, they may be considered employees rather than contractors (or ‘freelancers’) and should be treated as such. That comes with the usual tax liabilities. It’s straightforward to fall foul of these rules with so many grey areas.
An outsourced payroll provider will quickly and easily determine your worker status for you, mitigating your risk of employee misclassification and the associated tax burdens of non-compliance.
Audit support and documentation
Outsourcing payroll ensures your payroll record keeping will be accurate and organised, resulting in streamlined reporting and savings in admin costs. In the case of a tax audit or investigation by HMRC, the process is managed for you. They’ll provide comprehensive documentation of your processes and payroll records and submit evidence of your compliance measures. Dedicated tax experts will communicate with HMRC on your behalf and can manage the tedious, complex process while making sure you’re always on the right side of compliance.
Integration with tax compliance tools
Outsourced providers help you stay on top of the latest tax compliance laws with minimal effort. They’ll integrate your payroll systems with cutting-edge tax compliance software, which ensures smart calculations, filings made on time, and absolute oversight when it comes to your legal requirements. They also handle the paperwork so you don’t have to, including your end-of-year reports like P60s.
By outsourcing payroll, businesses gain improved oversight of their tax data, with real-time dashboards that monitor liabilities and any necessary deductions.
Case studies and success stories
London-based firm Bray Leino operated an ineffectual manual HR system with spreadsheets compiled by hand. This gave rise to poor-quality information and inconsistent data logs. It was draining their resources, too, with hours spent per week manually inputting data.
ADP’s HR Solution streamlined the process digitally, eliminating inconsistencies and protecting the company from the risk of non-compliance. It worked across all platforms and has an easily customisable user interface.
“When we were considering outsourcing our payroll and employee screening functions, the ability to mould the solutions to our specific needs was really important,” says Gemma Churchill, HR manager.
Digital solutions streamline your compliance workflows and speed up the process by using cloud data, reducing the risk of human error that usually comes with manual data entry. Plus, on-hand experts provide round-the-clock insights, so you always stay on the right side of the law.
It’s important to choose the right provider so that your employees are paid securely, accurately, and on time every month. ADP is the leading solution globally.
Outsourcing payroll can minimise business risks by keeping you compliant with tricky regulations, including GDPR. Your payroll will operate smoothly, no matter how many people you employ worldwide.
Outsourcing payroll to ADP makes your payroll admin easier, so you get back to focusing on your business. Book a demo today.