Many entrepreneurs do not have prior business ownership experience when they start their own business and have many things to learn says Edmonton bookkeeping. One of the things that they should learn as soon as they start running payroll whether it is to pay themselves a salary, or once they have employees is learning how to remit source deductions correctly. Canada revenue agency views source deductions as trust fund money, and are very serious when it comes to remitting it properly. Not only are the penalties very high for being late, but if it is done incorrectly, it will trigger a payroll audit. Not only will the penalties and the audit be time-consuming and expensive, it is completely avoidable by learning how to remit source deductions correctly, and then creating a plan that will help ensure they do it consistently.
One of the first things that Edmonton bookkeeping recommends entrepreneurs do when they are getting ready to run payroll for the first time, ensures that they are saving up a buffer of a month’s worth of source deductions in their bank account. This way, even if an entrepreneur into financial difficulties, they will still be able to remit source deductions to Canada revenue agency in full and on time. When an entrepreneur is getting ready to hire employees for the first time, they should start saving that money so that they are prepared.
The next step for entrepreneurs being able to create a plan is knowing when the remittance deadline is. Edmonton bookkeeping says while the fifteenth of every month is the deadline for the payroll that the made in the previous month, business owners should make a plan not to submit it on the last day of the deadline. The reason for this says Edmonton bookkeeping is because if there are any problems with sending the money in due to electronic issues, or Internet issues, that will trigger penalties for being late. Instead, a great idea is for an entrepreneur to remit source deductions at the same time that they are running payroll. Since the remittances are not due until payroll is one, doing them both at the same time will guarantee that an entrepreneur is never late. Also, it avoids the problem of an entrepreneur forgetting to do it. In addition to all of that, since the entrepreneur is already calculating the remittances, it is very easy to keep those calculations and simply make a payment to the Canada revenue agency.
Business owners should be aware that the penalty for being even one day late on submitting remittances is 20% today. This is even more expensive than 19% a year that people get with high-interest credit cards. Therefore, business owners should endeavor to never be late, so that they do not get hit with a penalty that may be very difficult for entrepreneurs to pay.
By creating a plan, entrepreneurs can ensure that they are remitting payroll taxes correctly and on time, and not only avoiding late penalties that could be financially destructive but also avoiding payroll audits that can be time-consuming and expensive. That plan will allow entrepreneurs to focus on the most important tasks at hand which is growing their business, developing their product, and gaining customers.
Edmonton Bookkeeping | Penalties Associated With Remitting Payroll Taxes Wrong
When entrepreneurs start running payroll, they need to be aware of how to calculate the source deductions, and how to remit payment. This can help them avoid payroll audits, penalties and having CRA aggressively chasing them for the money. Since payroll taxes never belong to the business owner, they are withheld from the employeeís checks, in order to submit to Canada revenue agency, therefore if entrepreneurs do not remit them on time, or in the right amount, Canada revenue agency sees this as using money that does not belong to them to fund their business, which is very serious.
The first thing that business owner should learn when they are learning how to withhold payroll taxes from their employeeís checks is that there has five components that they need to be aware of. In addition to that, there is taxes that must be withheld from the employeeís checks, and taxes that the entrepreneur themselves have to submit on behalf of the business. Edmonton bookkeeping says that if entrepreneurs are paying themselves a salary, they also need to withhold taxes from their own check and remit to Canada revenue agency as well.
These five components of payroll taxes are the employee portion of CPP and EI, as well as the employer portion of CPP and EI. Edmonton bookkeeping says that entrepreneurs should note that the employer portion of EI is going to be one point 4% higher than the employeeís portion. Once those four components are calculated, an entrepreneur also must withhold income taxes from their employeeís checks. With the employer having to submit CPP and EI on behalf of the business, they also should be aware that those are the two taxes that they entrepreneur must withhold from themselves, and remit to Canada revenue agency. Once an entrepreneur is aware of all of these taxes and the amounts, they will be able to calculate the source deductions accurately every time so that they do not run the risk of remitting too little taxes.
If an entrepreneur has not remitted the correct amount of taxes when the Canada revenue agency receives their T4 filing, they will send the entrepreneur a letter asking them to explain the discrepancy. If the entrepreneur cannot explain it, or if their explanation is not satisfactory, a payroll audit will be triggered. This is going to require an auditor looking over all of an entrepreneur’s payroll information which is a disruption to the business and time-consuming.
Avoiding a payroll audit is very simple, as long as an entrepreneur can remit the correct amount of payroll taxes to the Canada revenue agency. By knowing all of the taxes to withhold, entrepreneurs can ensure that they are withholding and submitting the correct amount consistently. This can free up the entrepreneur to spend their time and energy thinking about more important things such as the sales and marketing of their business, developing their product and gathering customers. By focusing on what is truly important, and having a plan for the rest can help business owners grow their business.