Sage Instant Payroll - Reasons for incorrect tax

Follow the steps in this article to help determine why tax may be calculating incorrectly in Sage Instant Payroll.

Individual employees affected

What is the pay date?

The pay date determines which tax week or month you are giving tax allowances up to.

To check, Pay Employees > Check pay date.

Have all previous periods been updated correctly?

As tax is calculated cumulatively, any incorrect periods affect the tax calculation for subsequent pay periods.

TIP: Check you haven't selected the Don't pay this employee box in error.

To check, Employee > Print employee reports > Form P11 (PAYE).

Ensure that no periods appear with zero or incorrect values.

NOTE: If there are incorrect periods on the P11, these must be corrected before continuing. You must restore then reprocess the incorrect period(s) and any subsequent periods.

As tax is calculated cumulatively, any missing updates affect the tax calculation for subsequent pay periods.

To check, Employee > Print employee reports > Form P11 (PAYE).

Ensure that all periods which should have been updated appear.

NOTE: If there are missing periods on the P11 which should have been updated, this must be corrected before continuing. You must restore, then reprocess the missing period(s) and any subsequent periods.

What is the taxable gross pay?

PAYE is only calculated on taxable earnings above the free pay allowance.

To check, Pay Employees > Maintain employees' pay > From the right-hand side select the appropriate employee > Print this payslip. The Gross for Tax value appears in the right-hand column.

If the Pay Adjustment is higher than the Gross Taxable Pay then no tax is due.

Is pay being advanced?

Advancing pay, for example over a holiday period, ensures that PAYE and NI are calculated correctly over the whole period. If pay is advanced incorrectly, PAYE allowances are wrong, resulting in incorrect tax being deducted.

To check, Pay Employees > Pay in advance > I want to pay 'xx' in advance for 'xx' periods.

Only full pay periods should be advanced: If a weekly employee is being advanced holiday pay for one week this should say 1.

What is the employee's tax code?

An incorrectly entered tax code affects the tax calculation.

To check, Employee > Maintain existing employees > Tax Code.

Remember to look at the Week1/Month1 check box. If this is selected, the tax calculation is different.

What is the employee's pay frequency?

An incorrect pay frequency may give an employee the wrong tax allowance, for example a weekly paid employee who has been set to monthly gets the free pay allowance for the whole month.

To check, Employee > Maintain existing employees > Payment Details > I want to pay this employee every.

Have YTD values been manually entered?

If processing has started in Instant Payroll part-way through the tax year YTD values must be entered for the period prior to using Sage Instant Payroll. If this has not been done or has been done incorrectly tax is not calculated correctly.

To check, Employee > Maintain year to date information.

NOTE: If a pay period has already been updated since entering YTD values, use the P11 to check the B/F values entered: Employee > Print employee reports > Form P11 (PAYE).

Has P45 information been entered correctly?

If an employee starts to work for you during this tax year and gives you a P45 with information relating to this tax year, this must be entered into Sage Instant Payroll to ensure the correct calculation of tax.

To check, Employee > Maintain year to date information.

The Previous (P45) Employment section shows the values from the P45 in the Total Pay to Date and Total Tax to Date boxes.

 

All employees affected

What is the pay date?

The pay date determines which tax week or month you are giving tax allowances up to.

To check, Pay Employees > Check pay date.

Have all previous periods been updated correctly?

As tax is calculated cumulatively, any incorrect periods affect the tax calculation for subsequent pay periods.

TIP: Check you haven't selected the Don't pay this employee box in error.

To check, Employee > Print employee reports > Form P11 (PAYE).
Ensure that no periods appear with zero or incorrect values.

NOTE: If there are incorrect periods on the P11, these must be corrected before continuing. You must restore then reprocess the incorrect period(s) and any subsequent periods.

As tax is calculated cumulatively, any missing updates affect the tax calculation for subsequent pay periods.

To check, Employee > Print employee reports > Form P11 (PAYE).

Ensure that all periods which should have been updated appear

NOTE: If there are missing periods on the P11 which should have been updated, this must be corrected before continuing. You must restore, then reprocess the missing period(s) and any subsequent periods.

Are the PAYE bandwidths set correctly?

PAYE bandwidths are set up when Sage Instant Payroll is installed, and can be amended, if appropriate. If a manual amendment is required, Sage customers with a valid support contract are sent a guide detailing the necessary changes.

To check, Tools > Legislation > Maintain tax bands.

If the incorrect legislation is being used and any updates have been processed with incorrect legislation, either:

• Restore, amend the legislation then reprocess.
  Or:
• If all employees are on a cumulative tax code, amend the legislation now and in the next period the tax recalculates cumulatively.
  
  If any employees are on a Week 1/Month 1 tax code and will not be moved onto a cumulative code within the tax year, you must restore a backup and reprocess using the correct legislation and make adjustments in the next pay period.