Monday 16 May 2016 12:01 am

Payroll tax errors bag the taxman an extra £737m

Payroll errors are costing companies, particularly smaller companies, a pretty penny, research released today has found.

According to the study by accountancy firm UHY Hacker Young, HM Revenue & Customs (HMRC) has bagged itself an additional £737m through investigations into slip-ups on payroll compliance, and over half (£373m) of that amount comes from SMEs. 

UHY Hacker Young is warning that the mistakes are costing smaller businesses disproportionately, given that they are responsible for just 11 per cent of the UK's total payroll, with accounting for casual labour, flexible working patterns and umbrella companies probably being behind the high number of errors that the taxman has looked into.

Read more: Taxman tells advisers to cough up the details

"SMEs are being chased for a totally disproportionate amount of underpaid payroll tax, compared to their larger counterparts," said Roy Maugham, tax partner at UHY Hacker Young. "But much of the underpaid tax is due to genuine errors. This strongly suggests the government needs to simplify its systems to help SME avoid mistakes.

"While SMEs will be reluctant or unable to pay for expert advice, they are clearly struggling to navigate the tax system as it stands."

Read more: HMRC seeks views on new tax evasion laws

Meanwhile, larger companies are forking out just £364m to the taxman for their payroll howlers, despite accounting for 89 per cent of the UK's payroll.

Maugham continued: "Investigations can be extremely disruptive to SMEs – as well as expensive. While some may be actively looking to avoid paying tax, in their vast majority, SMEs will simply be tripping up on a complex tax system."

HMRC is yet to respond to City A.M.'s request for comment.