The Payroll Basics

Payroll is an important task that must be completed accurately and on time. An inaccurate payroll system could mean that staff go unpaid and taxes go undeclared – potentially costing your business money in unnecessary fines and penalties.

There are many payroll systems – by hand or by an in house computerised system to name only a few. Whatever the system in place, there are a few key basic procedures and rules that businesses should be aware of and understand.

Registering With HMRC

If you are a new employer, then the first job you will need to do is register as new business with Her Majesties Revenue and Customs (HMRC). You will be sent a series of information books and guidelines on how to correctly operate a PAYE (Pay as you earn) system and how to calculate National Insurance contributions for your employees.

Tax Deductions

Once the business is registered with HMRC it is necessary to calculate how much tax each employee will be required to pay. This must be calculated accurately and must take into consideration the tax code of each employee, as tax free periods may be apply.

Statutory Payments

As an employer there are several payments that you will have to pay from time to time. Payments such as maternity and paternity leave and sickness pay are required by law. Do not overlook these requirements. Read any information that is sent form HMRC regarding these statutory payments.

Penalties and Fines

As with most tax issues, there are stiff penalties for those who choose to ignore the rules. HMRC can and will impose penalties businesses that do not comply with the necessary regulations. Remember to keep all the necessary records as outlined in the guidelines. Failure to operate the PAYE system or National Insurance contributions correctly can lead to fines being imposed, as will the failure to present all of the required forms on time to HMRC.

This whole process has proved to be confusing and time consuming for many small businesses and sole traders in particular. If this is the case, the best course of action is to consult a book keeping service that can set up and mange a payroll systems for all types of businesses, both large and small. This way, all the payments and tax returns will be taken care of each month by trained and experienced bookkeeping professionals, leaving employees paid and the HMRC happy.

The Importance of creating a Budget

There is a fine line between success and failure, as the saying goes. For businesses, especially of small and medium size, this line can become even finer. One way of making sure that financial mismanagement does not cost you your business is by having a budget that is rigorously followed and professionally created.

Creating a budget is vital. But how does it help businesses?

Setting Targets

By establishing a well researched and clearly outlined budget, businesses can set targets and goals for achieving a certain level of income, whilst at the same time monitoring expenses. It requires the business to look ahead into the future and understand, for example, how much produce or products needs to be sold per month for the budget to be met. Budgets work hand in hand with targets and many businesses find that it is only once a budget is created that accurate goals can be achieved.

Helps understand Cash Flow

A budget allows the business leader to understanding the company's cash flow, which is an essential task that is often overlooked. By failing to get to grips with financial records, a company could face bankruptcy, simply because they have failed to understand where their money is coming from.

By monitoring cash flow, companies can for example get to know which clients pay quickly and who doesn’t, allowing for additional pressure to be placed on the slower clients so that the funds are invoiced on time.

Controls Costs

It is vital that businesses know how much they are spending and on what. A budget allows for limits to be set on costs. By breaking down costs and actually seeing where the money is going businesses usually find that savings can easily be made. It is important to address any areas of concern immediately to stop the business haemorrhaging money it cannot afford to lose.

An Unavoidable Process

Budgets are an important element for every business. Skip this essential task and there will be trouble in the future. Every business, whether big or small, must live within its means and know where every penny comes from and goes to. Small businesses and sole traders in particular however may find that budget creation is a time consuming or confusing task.

If this is the case there are professional services that can help you and they would be a sound investment. To trained bookkeeping and accountancy professionals this is an easy and simple task. Investing in help could save time and, in drastic circumstances, the business itself.

Emergency Budget 2010 – What it means for the Small Business

The Chancellor George Osborne’s Emergency Budget was a mixed bag for small businesses with varying ramifications. How will the key announcements affect your business?

Corporation and Small Companies Tax Rate Cut

It is estimated that over 850,000 small businesses will benefit from the small companies tax rate cut which will be lowered to 20% from April 2011 onwards. Corporation tax will be reduced to 24% over the next four years. This news has been welcomed by many business leaders, and the idea is this will spur on private sector growth and make the taxes businesses pay the lowest out of the whole of the G20, making the country more business friendly to outside investors.

National Insurance Tax breaks for start-ups

The one-year tax break for the first 10 employees hired for businesses outside London, the southeast and eastern England will provide savings up to a maximum of £5,000 per employee: excellent news for start-ups. However, the tax break is not available for those businesses already in existence or those outside the areas mentioned: something that could well attract criticism.

VAT to be raised to 20%

This rise is expected to hit small businesses hard. John Walker, National Chairman of the Federation of Small Businesses, sent a warning after the announcement saying: “The increase in VAT to 20% will hurt small firms who will have to pass the increase on to their customers, unlike big business which can absorb the cost.” Consumers may decide to put off spending once the rise kicks in after January 2011, potentially causing a drop off in trade and many businesses that are currently loitering on the edge could be pushed over with this rise.

Key Advice – Understand the Consequences

It is important to keep an eye on these developments and seek advice on how the VAT rise and the all the other measures could affect your business. Seek advice is the message, if anything is not 100% clear.