Edmonton Small Business Accountant | Minimizing Payroll Remittance Problems
One of the most significant challenges that business owners face in Canada today says Edmonton small business accountant, is running out of money. The statistics say that half of all businesses will close the doors to their business within five years, and that 29% of those entrepreneurs will say that running out of cash was the reason they had to close their business. With all the significant challenges that business owners face, learning how to run payroll can help them eliminate problems that are associated with payroll errors. Not only are penalties that are associated with payroll errors the largest that CRA and so, but knowing how to avoid these errors, business owners run into these problems in the first place.
Since running out of money is such a significant problem to so many businesses, many entrepreneurs try to get creative as a way of increasing cash flow in their business. Business owners who utilize source deductions as a way of increasing cash flow in their business can run into significant problems with CRA. Small business accountant says business owners often collect those source deductions, and then use those funds to operate their business in order to try to increase cash flow before those source deductions are due to CRA. This is especially dangerous, businesses aren’t able to increase the cash flow in their business, or if they miss those source deductions payments. Business owners can face up to 20% in penalties after even just one day not feeling there source deductions on time. The reason why this is such a huge penalty from CRA, says Edmonton small business accountant is because CRA takes it very seriously business owners use trust funds to run their business. It can be far less expensive for a business owner to fund their business through high-interest credit cards then on CRA remittance money.
Another way that business owners can run into problems with CRA through source deductions, is by failing to pay enough remittances. Employers need to know that it’s not just the employee remittances that they need to collect and send to CRA, but they also have a contribution they need to make themselves. That amount went up in 2019, and is currently sitting at 7.37%. This amount is in addition to the employee source deductions says Edmonton small business accountant. If business owners are not aware of this, they could pay source deductions all year long only to realize at the end of the year when they file their T4, that there is a shortfall. If there is a shortfall, CRA will hit the business owner with penalties as well as potentially an audit in their business.
By understanding all of the penalties that are associated with source deductions with the Canadian Revenue Agency, business owners can plan ahead of time to minimize these risks, And a break their business without risk of getting hit with huge penalties or audits says Edmonton small business accountant.
There are only a couple ways where business owners can run into problems when it comes to paying source deductions says Edmonton small business accountant. However, these have huge consequences. Business owners need to be aware of how to pay their source deductions properly in order to minimize problems. As well, they need to understand what some of the penalties are, in order to ensure that they don’t get hit with these penalties themselves. CRA views payroll remittance issues as some of the most serious that they will face, and it carries the highest penalties. Business owners should be educated in order to avoid is extremely high penalties in their business.
Most important things that business owners can keep in mind when they are taking source deductions off of their employees paychecks, and remitting those payments to CRA, is how much money they need to take off of their employees checks, and how much the to pay CRA. Edmonton Small business accountant says it’s not only important for the business owner to take off enough source deductions from their employees checks, but it’s also important for the business owner to pay the correct amount to CRA. Many business owners assume that that is the same amount of money, but they would assume wrong. In addition to paying CRA the source deductions from their employees, business owners also owe the CRA contribution that they make themselves. Employers are expected to pay CRA for employer EI and employer CPP amounts. This ends up being 7.37% for both of those amounts If the business owner remits only the source deductions they have taken off of their employees paychecks, they will end up paying too little. And CRA may not issue them a penalty until the end of the year. However Edmonton small business accountant says once they have filed their T4s, CRA will have a list of all of the remittances businesses should have made in the last year and that amount of remittances they actually made. If the two amounts don’t match up, then the business owner will be in trouble. They should expect within 30 to 90 days of their taxes, that they will get a demand letter asking for the entire shortfall, they will also potentially get a penalty of up to 20% interest, which depending on how large the shortfall is, can be a massive amount. They also may be hit with payroll audit. Edmonton small business accountant says these things can all be financially devastating to a business that potentially can cause a business to be forced to close their doors.
Business owners should also keep in mind that they are 100% personally liable for payroll source deductions. So whether their business actually does close their door or not, they will remain on the hook and expected to pay those source deductions. This is the way that CRA can ensure that the matter what happens, businesses don’t misuse those trust funds, CRA does get the taxes that they need. If you’re a business owner and you think you may need the help from one of our small bussiness accountants, be sure that you give us a call.