Edmonton Small Business Accountant | How To Avoid Payroll Remittances Problems
Even though an entrepreneur may be really great at what they do in their business says Edmonton small business accountant, that doesn’t necessarily make them good at running their business. As Michael Gerber, the author of the E myth has been quoted as saying the fatal assumption is: if you understand the technical work of the business, you understand a business that does that technical work.” Just because entrepreneurs are extremely good at what they do in their business, doesn’t mean they don’t need help with running their business. Often business owners seek help from their accountant because they end up being behind on their payroll remittances, and are being assessed penalties. This can be financially devastating to a business, but with so effective tax planning with their accountant, and knowing what they need to do as well as what they need to avoid, business owners can easily avoid running into problems with CRA due to payroll tax problems.
One of the first things that business owners should keep in mind is that the penalties that CRA hands out for payroll tax problems is very steep, and the are very aggressive when it comes to collecting that money. Edmonton small business accountant says CRA hopes that having such steep penalties will act as a deterrent for business owners. If business owners are aware that it’s a huge penalty, they will avoid missing payments. One of the reasons why businesses may miss payments on their payroll remittances, is if they are already having a cash flow problem in their business, and they either can’t afford to pay payroll remittances, or believe that they will be able to use that money to increase cash flow until there deadline. This is an extremely dangerous action, business owners that are using payroll remittances to fund their cash flow are already in dangerous financial territory, if they happen to miss a deadline, that can financially ruin them. CRA sees using source deductions to fund business as an abuse of trust funds, money that doesn’t belong to them. Business owners are aware of how steep the penalties are, the will avoid making this error in their business.
In order to avoid paying late, business owners should come up with a plan for how they’re going to pay their remittances to CRA in order to avoid being late. Edmonton small business accountant highly recommends business owners send in their payroll remittances on the same day that they are running their payroll. The reason for this, is because business owners are already calculating source deductions, all they have to do that from that point is add all of the amounts together, and send off that check to CRA. Not only is it simple, it is easy.
Business owners should also know what they have to pay to CRA for all of their remittances to avoid underpaying. In addition to taking source deductions off of their employees checks, business owners need to be aware that they also owe contributions themselves this is small business accountant. Those contributions are for employer CPP and employer EI and total 7.37% in payments that the employer must contribute as well.
If business owners get behind on their payroll remittances to CRA, they can end up being hit with massive penalties that could make it extremely difficult for businesses to recover from says Edmonton small business accountant. Business owners should be aware of all of the requirements when they are paid payroll remittances, in order to avoid making errors and ending up being in arrears. This is a good opportunity for business owners to work with their accounting team in order to effectively tax plan the upcoming year to avoid payroll tax issues in their business.
Edmonton small business accountant says even though businesses have until the 15th day of the month to pay their remittances, they advise against waiting that long. The potential penalty for being just a single day late on submitting remittances to the Canada revenue agency, is astronomical. Business owners face up to 20% daily interest charges. If they miss their deadline just by a day, a $10,000 remittance can turn to $12,000 overnight. The interest that they incur is due, and keeps getting added on until the business owner pays the arrears. Business owners should come up with a plan in their business to avoid paying their remittances late. Even though it’s due on the 15th, business owners should never wait until the 15th to pay. If something happens and the payment is not received, or if the business owner is unable to make that payment on a certain day for any reason, they could end up in huge financial troubles. And small business accountant says business owners can avoid problems simply by sending in their remittances on the same day that they run their payroll. Not only is it easy to remember, but they already have the amounts that they must pay calculated.
Entrepreneurs should also be aware of all of the components of remittances. Employers must withhold taxes from their employee’s paycheck, in addition to employment insurance and Canada pension, business owners also need to make their own contributions. They must pay CPP themselves, in an amount equal to their employees pay. It also business owners need to pay employment insurance at a higher rate than what their employees must pay. Both of those amounts equal 7.37% in additional payments the business owner needs to make and submit to CRA as a remittance. If they aren’t aware of this additional amounts as Edmonton small business accountant, they will be underpaying their remittances, and could end up in trouble with CRA.
Business owners should also be aware that directors of their company are personally liable for payroll tax. In 10 small business accountant says even if the business ceases to exist, business owners who are directors will be responsible for paying payroll tax regardless. CRA will continue to come after business owner no matter what. If you are in need of accounting help just get in contact with us from Spurrell and Associates.