How an entrepreneur would trigger a payroll audit, would be if they are paying their source deductions late, or if they have remitted the incorrect amount says Edmonton bookkeeping. This can be very simple to learn how to avoid, but very important that entrepreneurs do avoid this. The reason why, is because Canada revenue agency hands out some of their stiffest fines and penalties for not paying the source deductions correctly. The reason why, is because the view source deductions as trust funds. An entrepreneur has been entrusted to collect money from their employees on behalf of the government. If an entrepreneur has remitted that payment late, or not remitted enough, they consider that an abuse of government money.
The first thing that entrepreneurs need to understand, is that to avoid triggering a payroll audit, they simply have to ensure that they are paying the source deductions on time. Source deductions are due the fifteenth of every month, in the month following pay date says Edmonton bookkeeping. For example, if entrepreneurs have run a payroll in February, the payroll remittances are due to Canada revenue agency by 15 April. However, it is considered good practice for entrepreneurs to avoid waiting until the very last day to remit payment. If something goes wrong, and Canada revenue agency does not end up getting that payment on the same day, it could trigger an audit or fines.
A much better scenario, is for entrepreneurs to simply send that money to Canada revenue agency at the same time that they are running payroll. Not only is this good practice to ensure that they are never late, but it also is faster, because entrepreneurs will have already calculated the source deductions. All they have to do is make that payment out to Canada revenue agency to avoid having to make that calculation again and potentially getting it wrong says Edmonton bookkeeping.
The next thing that an entrepreneur can do to avoid getting penalties or triggering a payroll audit, is to pay the correct amount of source deductions. This means, that entrepreneurs need to understand all of the taxes that need to be withheld from not just their employees paychecks, but their own paycheck if they take a salary. This means income taxes, CPP and EI. However, Edmonton bookkeeping says that entrepreneurs also need to be aware that they have to calculate CPP and EI on behalf of their company to remit to Canada revenue agency. This might seem confusing, however Canada revenue agency has a program that entrepreneurs can simply put the payroll amounts into, and this program will show how much source deductions need to be withheld.
An entrepreneur can simply and easily avoid fines, penalties and triggering payroll audits as long as they are paying source deductions on time and in the correct amount. As soon they start paying themselves or their first employee’s salary, this is a good time for entrepreneurs to learn everything that they need to do to avoid being hit with penalties.
Edmonton Bookkeeping | How To Avoid Payroll Audits
Many entrepreneurs may believe that they are remitting source deductions accurately says Edmonton bookkeeping. However, if they are mistaken, they are not going to be told by Canada revenue agency during the year. The only way they are going to find out, is when they complete their T4 and T5 filing, and Canada revenue agency can calculate how much source deductions they have paid compared to how much they should have paid. If there is a discrepancy, entrepreneurs could trigger penalties, or a payroll audit.
Since T4 slips where source deductions are calculated., When entrepreneurs file their T4 and T5 slips by the last day in February, if the amount of payroll deductions that they should have paid does not match the amount that they have already paid, this could end up triggering penalties or payroll audits says Edmonton bookkeeping. Therefore, entrepreneurs should get into the habit of looking at their T4 slips prior to filing them. Even if they are using the program on the Canada revenue agency website to calculate source deductions, it is good practice to look at the source deductions prior to filing the T fours.
The reason why this is so important says Edmonton bookkeeping, is because if an entrepreneur has discovered that they have accidentally underpaid source deductions, they have until January 15 of every year to permit the proper amount. By looking at the T4 slips before filing, and then submitting the amount that they are left owing prior to filing the slips, they can avoid triggering penalties or payroll audits.
However, Edmonton bookkeeping says that if an entrepreneur has not followed this advice, and they have file their T4 slips and they still owe source deductions, they should expect to get a letter from the Canada read a new agency asking them to explain the discrepancy. Edmonton bookkeeping has a recommendation that entrepreneurs simply pay the amount that they owe them, because if they try to explain it, Canada revenue agency does not accept their explanation, this will trigger a payroll audit.
What they are looking for during a payroll audit, is to figure out where the source deductions that an entrepreneur has withheld went. They are going to look at all of the pay stubs in the business, all of the bank statements, and look at an entrepreneurs personal expenses. Going to try to verify where that money went, and if an entrepreneur has used it to fund them selves, or their business, they will be issued penalties. Not only can payroll audits be time-consuming, but they can also result in steep penalties.
It can be very easy for entrepreneurs to learn how to calculate source inductions correctly, and know when to send them to Canada revenue agency. By following this protocol consistently, entrepreneurs can ensure that they are always avoiding running into problems and triggering penalties or payroll audits in their business.