What Happens During A Payroll Audit | Virtual Accountant
It is very important for entrepreneurs to ensure that they are filing their T4 and T5 slips on time, as well as being current on all source deductions says virtual accountant. The reason why is that entrepreneurs can avoid facing a payroll audit in their business. Payroll audit can be very stressful for entrepreneurs to go through, because it may end up costing them significantly more taxes and interest. Since most entrepreneurs face financial difficulties from time to time, especially if they are new, waiting for an audit can help an entrepreneur avoid paying additional taxes in their business.
The first thing that entrepreneurs need to understand is that T4 and T5 slips need to be filed by the last they of February. The reason why, is because personal taxes are due in April, and therefore an entrepreneur needs to ensure that their staff, as well as Canada revenue agency has the correct slips in order to ensure that the correct taxes are being filed.
It is also very important that entrepreneurs are ensuring that they are withholding the correct amount of source deductions from all employment income in their business regardless of if it is staff or for the entrepreneur’s salary. Virtual accountant says that many entrepreneurs need to understand that there is actually a deadline these amounts all to be submitted to Canada revenue agency. This deadline is the fifteenth they have every month, and everything that was paid in the previous month has source deductions due by the fifteenth day of the following month.
Business owners should be aware that if they are not submitting the correct amount, this is not going to trigger the Canada revenue agency contacting them yet. According to virtual accountant, as long as an entrepreneur is making the payment on or before the fifteenth day of each month, they will not contact an entrepreneur. However, if an entrepreneur has paid to little by the end of the year, the best-case scenario is that Canada revenue agency will send them a demand letter asking for the entire amount that they are short, however in the worst-case scenario it will trigger a payroll audit.
It is extremely important that because an entrepreneur will not get a warning that they have been paying enough, that they are accurately calculating all applicable payroll taxes. This includes not just the employee portion of CPP, but the employer portion as well, EI and income tax. They must ensure that they are withholding this amount from all employment income and submitting it to the Canada revenue agency on time.
Business owners can avoid triggering a payroll audit in their business simply by ensuring that they are calculating the correct amount of source deductions and paying them on or before the fifteenth day of every month. By doing that, entrepreneurs can ensure that they never have to face a payroll audit that may end up triggering additional payments that can be difficult to make, causing their business to suffer.
Virtual Accountant | What Happens During A Payroll Audit
There are a couple of things that entrepreneurs need to keep in mind in order to avoid facing a payroll audit according to a virtual accountant. They can ensure that they are filing their T4 and T5 slips by the end of February, and they can ensure that they are paying all payroll remittances to Canada revenue agency on time and in full. However, as easy as it might be for many businesses to avoid a payroll audit, especially during a difficult time, an entrepreneur may run into issues that will cause Canada revenue agency to trigger a payroll audit. If this is the case, entrepreneurs should keep a couple of things in mind to get through the process as smoothly as possible.
If an entrepreneur has calculated that they have underpaid source deductions to Canada revenue agency, yet they do not have cash in their business to be able to pay it in full, but they want to try to avoid a payroll audit, they have and often to try to help them avoid being short period they can ask their virtual accountant to reclassify all of the business owners employment income as shareholder loan or dividends, so that an entrepreneur can divert payroll remittances that were previously made for their open income, towards employees income. This can sometimes be enough to avoid short in their payroll remittances.
However, if an entrepreneur does end up being short, and are facing a payroll audit, one of the first things they should do is go through all of their personal benefits cash and non-cash with their virtual accountant in order to ensure that any unclaimed transactions are attributed to their shareholders loan account for the auditor sees their statements. This can show the auditor that the entrepreneur has credibility, and is being transparent of the transactions they had in their business that were not claimed. But this can do is help the auditor give the entrepreneur benefit of the doubt especially when looking at grey area transactions. This can end up saving significant amounts of additional taxes and interest charges.
Other things that the auditor is going to be looking for is any transactions of the payments that went out to individuals rather than businesses. The auditor is going to try to determine if these amounts are being paid to employees and should then have source deductions be taken from their income. If an entrepreneur has ever hired an unincorporated business, this puts all transactions they were paid towards those companies at risk for being classified as staff.
It is very important that entrepreneurs are ensuring that when they are filing their T4 and T5 slips, that they have included all transactions in their business that they have made for personal cash and non-cash benefits so that if they are audited, they will not have a lot of outstanding transactions for the auditor to find. This can help them ensure that they come out of the payroll audit without having to pay significant amounts of additional taxes and interest charges.