How Outsourcing Payroll Can Prevent HMRC Penalties

Outsourcing Payroll

How Outsourcing Payroll Can Prevent HMRC Penalties

 17 Mar 2017

Whether you are a large or small business owner, you may have considered outsourcing your company’s payroll responsibilities at some point in time. Outsourcing payroll means hiring an external firm to handle all the payroll functions of your company. It enables businesses to save money and time, reduces the need for in-house trained payroll staff and helps to prevent HMRC penalties. The service level of payroll outsourcing varies where some firms provide a basic service while others also deal with everything involved, such as liaising with HMRC and maintaining full compliance without the business ever having to deal with its payroll obligations. If you are wondering how outsourcing payroll can prevent you from HMRC penalties, you have reached the right place. We at not only provide comprehensive payroll outsourcing solutions but also are here to solve all your queries related to payroll. Below is an insight on how outsourcing payroll can prevent HRMC penalties to help you determine whether you should opt for outsourcing or not.

There are several reasons why businesses often initially process payroll themselves.  Some businesses consider in-house processing to be an efficient method. However, for a lot of companies this in not the case. In fact, there are several benefits that a business can reap by outsourcing their payroll. Dealing with the payroll in-house is often a time-consuming and resource-demanding process. It requires the in-house staff to have awareness of constantly changing HMRC requirements in order to meet the detailed legislation and strict deadlines. In-house processing becomes a more costly solution for payroll matters when you take into consideration the time spent and potential penalties for missed deadlines.

In addition, with the recent onset of auto-enrolment and compulsory workplace pension schemes, the compliance obligation on employers has significantly increased. Many businesses are asking our experts at to deal with their pension obligations also to operate their payroll. This has enabled us to provide an integrated service through which we ensure that all the compliance obligations of your business are met.

What Is Payroll Tax?

In order to understand how outsourcing payroll works, it is important to know what exactly payroll taxes are. Payroll tax is a type of tax that gets imposed on employers or employees and is usually calculated as a percentage of the salaries that employers pay to their staff. Payroll taxes generally fall into two categories: taxes paid by the employer based on the employee's wages and deductions from an employee’s wages.  The first kind is taxes that employers are required to withhold from employees' wages, also known pay-as-you-earn tax (PAYE), or pay-as-you-go tax (PAYG) and often covers advance payment of income tax, social security contributions, and various insurances (such as unemployment and disability). The second kind is a tax that is paid from the employer's own funds which are directly related to employing a worker. These can consist of fixed charges or be proportionally linked to an employee's pay. The charges paid by the employer usually cover the employer's funding of the social security system, and other insurance programs.

In the United Kingdom, Pay As You Earn (PAYE) income tax and Employees' National Insurance contributions are examples of the first kind of payroll tax, while Employers' National Insurance contributions are an example of the second kind of payroll tax.

HMRC Penalty 

The HMRC (HM Revenue & Customs) is the non-ministerial department of the UK government that governs the collection of taxes. It recently announced it was going to focus its attention on payroll tax errors. Most people expected larger businesses to bear the impact of this announcement. In reality, though, something very different has happened. SMEs (Small or Medium Enterprises) account for 11% of the total UK tax payroll. Yet they also account for more than half the total HMRC haul from payroll tax errors.

According to national accountancy chain UHY Hacker Young, the government has collected over £737 million from investigations into tax avoidance and employer compliance errors, with £373.4m coming from Small or Medium Enterprises.

Why are small or medium sized businesses more prone to make errors in payroll matters resulting in them paying hefty penalties? One argument suggests that it’s easier to find the compliance errors and irregularities in a small business payroll because there’s fewer data to wade through and your average business can’t afford the same sort of tax advice as a global brand. In addition, UK tax system is simply too complex and those businesses are almost inevitably bound to go wrong somewhere. Paying a hefty penalty can harm the financial stability and can hinder the progress of a business. So, it is important that you find a way to ensure that your company’s payroll taxes are compliant with the regulations set by the HMRC and no errors are made from your side.

How Can Outsourcing Payroll Help?

•    Cost- Effective- It can sometimes be difficult to calculate the cost of servicing payroll in-house, but when you consider wages for employees, software costs and training costs, you may be surprised by how much you actually spend. If you take into account the penalties for mistakes and missed deadlines, then in-house processing may become costly.

We at offer a fixed-price service, which is tailored to the needs of your business. This makes outsourcing your payroll to us an affordable and quantifiable solution.

•    Flexibility- Different businesses have different needs, so it is crucial that a payroll provider offers a flexible service tailored to the specific payroll needs of your business. As your needs are likely to alter over time, especially when experiencing growth or change, you don’t want to look for a new payroll provider. Instead, you want to have the option to adjust your agreement and package upon requirement. In addition, if you provide the information later than normal, will your provider still manage to process the payroll on time?

At we pride ourselves on being flexible and able to adapt to our clients’ needs. If information is provided by you later than usual, we will work hard with you to ensure that the payroll is still processed on time.

•     Expertise- HMRC requirements are constantly changing with more obligations on the employer, with Real Time Information (RTI) and Auto-Enrolment being the recent examples. Small or medium business owners simply cannot be expected to keep abreast of all of the changes. Instead, using a third party like, who have experienced specialists who are used to dealing with these obligations and constant changes and thus can be extremely helpful. We stay well-informed of the changes and provide guidance to help your business comply with the updated legislation. This will undoubtedly reduce the number of mistakes made during the payroll process and, as mistakes can quickly become expensive, it is crucial that you eliminate these where possible.

•    Ensuring Deadlines are met- Real Time Information (RTI) for PAYE RTI was introduced in the month of April in 2013. It meant that all employers are required to make an FPS (Full Payment Submission) to HMRC on or before each payday. An employer may also be required to submit an EPS (Employer Payment Summary) to HMRC on a monthly basis. An employer with a weekly and monthly payroll could be required to make as many as 76 online submissions to HMRC each tax year. If the submission is not made on or before the payday then HMRC will issue penalties and charge interest on the late payments. Why have the burden of meeting the deadlines yourself when can deal with the submissions on your behalf?

Along with Real Time Information requirements employers are now also required to set up a workplace pension scheme, Auto Enrolment has been phased in for large businesses since October 2012 requiring them to comply with the legislation by February 2018. It means that from an employer’s starting date all employers must assess staff every pay period to determine whether they would be required to make compulsory pension deductions based on their age and earnings. Most employees between the age of 22 and 65 will be required to have deductions made against their payment. An employer will also be required to provide a file to the pension provider each pay period containing various details in a specified format. can liaise directly with you and your pension provider to ensure the process runs smoothly. Auto Enrolment is a legal requirement so it is crucial that your company complies with the legislation as the penalties can range up to £50,000 and employers can be prosecuted. We can assist you so that you have peace of mind. Payroll experts at can also assist in setting up and managing a compliant pension scheme.

  • Time Saving- Regardless of the size of your business, the payroll process demands a great deal of time and effort from your side. This time and effort can be otherwise spent growing the business or relaxing with friends and family. Outsourcing your payroll will allow you to have the opportunity to spend your time more effectively; with more time to support your employees and work towards business objectives. Focusing all of your efforts on your core business is crucial as the more time spent on sales, the faster your business will grow.

Outsourcing payroll isn’t something only big businesses do. And if the latest actions by HMRC are anything to go by, it may be that small businesses stand to benefit more than anyone else from letting go of their payroll responsibilities. To find out more, contact us now.