Why Payroll Remittances Must Be Paid On Time | Virtual Accountant
Entrepreneurs need to keep in mind that not only do they need to ensure that they are taking the appropriate source deductions off of their own salary as well as the salary or wages of any staff says virtual accountant, but they have to submit this amount to Canada revenue agency on time every month in order to avoid triggering penalties as well as potentially getting hit with a payroll audit. Since 50% of all entrepreneurs fail, and 29% of those entrepreneurs say they failed because they ran out of money, avoiding additional penalties and audits can help entrepreneurs stay cash flow positive longer.
An entrepreneur needs to keep in mind that not only do their staff have source deductions taken off of their employment income but if an entrepreneur is taking money out of their business as salary, this is also considered employment income and needs source deductions taken off as well. Virtual accountant says that entrepreneurs need to keep in mind that there are five different payroll taxes that need to be withheld from all employment income paychecks. Not only do they have to pay EI and income tax, but an entrepreneur also needs to withhold the employer portion of CPP as well as the employee portion of CPP. They have to ensure that there taking the correct percentage off of each check, and for each tax.
Many entrepreneurs are not aware that there is a deadline to submit those payroll remittances to the Canada revenue agency. The fifteenth day of every month is when those amounts are due, or all payrolls that were done in the previous month. For example, says virtual accountant if an entrepreneur has any payrolls in January, the payroll remittances are due February 15. However, an entrepreneur should not wait until the last day in order to submit payroll remittances. It is a far better practice to get into submitting payroll remittances on the same day that an entrepreneur is submitting payroll. The reason is, if they do it at the same time, an entrepreneur will never risk a late payment, and since they already have calculated the source deductions, they can simply write a check to Canada revenue agency for the same amount. It saves time and avoids problems.
Any entrepreneurs are confused as to how Canada revenue agency would even know if they paid enough in source deductions. Virtual accountant says that when an entrepreneur prepares the T4 and T5 slips and file it with Canada revenue agency, the T4 slips will indicate how much taxes should have been remitted, and if the entrepreneur is short by any amount, best case scenario will be that they will send the entrepreneur a letter asking for the amount in full, unfortunately, the worst-case scenario will be triggering a payroll audit.
Entrepreneurs can avoid triggering a payroll audit simply by ensuring that they are paying their source deductions in full every month, and ensuring that there filing their T4 and T5 slips by the last day of February every month. By doing this, they will avoid having to face a payroll audit that could have them paying additional taxes and interest.
Virtual Accountant | Why Payroll Remittances Must Be Paid On Time
A great habit for entrepreneurs to get into early on in their business says virtual accountant is remitting source deductions to Canada revenue agency at the same time that they run their payroll. The reason for this is so that they will never risk missing a monthly deadline, or forgetting to make a payment. If an entrepreneur is a payment or does not enough in people’s remittances by the end of the year, they could face a payroll audit that would create even bigger problems for the business.
If an entrepreneur is facing an audit, they should be prepared for the process says virtual accountant. An auditor is going to ask them to write monthly bank and credit card statements for the last year, as well as look at their general ledger. What the auditor will be looking for says virtual accountant are two things.
The first thing is they are going to be reviewing the bank statements in order to see what amounts went out to individual people rather than businesses. What they are trying to determine is if there were any payments made to employees that did not have the appropriate source deductions withheld, and then passed on to Canada revenue agency. This can create problems if an entrepreneur has ever paid an unincorporated business or services. The reason why, is because unincorporated businesses typically get paid from the business owner’s name. So if an entrepreneur has hired an unincorporated courier company, for example, they will submit a monthly payment to John Smith, which might look to an auditor like an entrepreneur is paying an employee. If this is the case, and auditor may require an entrepreneur to pay additional taxes on that amount.
The second thing that an auditor is going to be looking for says virtual accountant is any personal transactions the business owner had in the business cash and non-cash benefits, such as using company money to pay the personal bills like a mortgage. They are going to look for those transactions to ensure that an entrepreneur has claimed them on a T4 or it T5 slip. Any amounts that have been previously attributed to properly, you will get hit with additional taxes and interest.
An entrepreneur can help themselves if they know that they have had personal payments that they have not claimed says virtual accountant. If they go through their statements and attributes anything that has not previously been an accountant for to their shareholder loan account for the auditor gets there, they can demonstrate credibility and transparency to the auditor, and hope for leniency.
By knowing what to expect when facing a payroll audit can help entrepreneurs get through the process easily, and without incurring a lot of charges. By doing this, if an entrepreneur has triggered a payroll audit, they can ensure that they will be paying the most minimal amount, which will hopefully help them avoid running out of money in their business.