Manual tax calculations

When the new tax year begins on 6 April 2022, Sage Instant Payroll will no longer be compliant and support will end. Don't worry though, we've got you covered. Find out more >

There are a number of reasons why your employees tax might change, including the following:

• Their pay is higher or lower than usual.
• HMRC ask you to amend their tax code.
• You add a starter form to their record.
• You amend their year to date values.

If your employee's tax has changed but you're not sure why, you can perform a manual calculation to check it against your software.

Tip: For more information about why your employee's tax might change, please refer to the relevant article:

• Sage 50cloud Payroll
• Instant Payroll

Step 3 - Calculate the taxable pay to date

This is:

• Taxable gross pay to date + taxable gross pay for the current period - pay adjustment.

Example:

Step 4 - Calculate the tax due to date

Once you've calculated the taxable pay, you need to choose which tax table to use to calculate the tax due. To check which table to use, refer to pages 2-4 in the HMRC helpbook Taxable Pay Tables Manual Method - Tables B to D.

• Table B - Use this table if the employee's taxable pay is less than or equal to the figure in Column 1 for the relevant pay period.
  
  Ignoring the pence, look up the employee's pay in Table B. If the exact amount of taxable pay is not displayed, add together the figures for 2 or more entries.

Example:

1	Taxable gross pay to date	3097.02
2	Tax due to date	Table B 3000 = 600.00 97 = 19.40 600.00 + 19.40 = 619.40

• Tables C and D - If the employee's pay is greater than the figure in Column 1 for the relevant pay period, use these tables.
  
  
  1. In Table C1 for monthly or weekly, look up the pay period.
  2. Is the taxable gross pay to date more than the amount in Column 1 but not more than the amount in Column 2?
  3. If yes:
     
     
     1. Deduct the value in Column 1 from the taxable gross pay to date.
     2. Look up this value in Table D - Higher Rate (Tax at 40%), ignoring any pence.
     3. Add together the tax due at 40% from Table D and the value from Column 3 in Table C1.
        
        
  4. If no, use Table C2:
     
     
     1. Deduct the value in Column 4 from the taxable gross pay to date.
     2. Look up this value in Table D - Additional Rate (Tax at 45%), ignoring any pence.
     3. Add together the tax due at 45% from Table D and the value from Column 5 in Table C2.

EXAMPLE: 

An employee is paid weekly. It is week 45, the tax code is 1150L and the taxable gross pay to date is £35,000.00.

1. Table C1 > week 45. Column 1 = 27693, Column 2 = 129808
2. Taxable gross pay to date is 35,000.00, therefore it's between the two values. Continue to step 3.
3. Yes, therefore:
   
   
   1. 35000.00 - 27693 = 7307.00
   2. 2920.00 + 2.80 = 2922.80
   3. 2922.80 + 5538.73 = 8461.53

An employee is paid monthly. It's month 4, the tax code is 50L and the taxable gross pay to date is £52,000.00.

1. Table C1 > month 4. Column 1 = 10595, Column 2 = 50000.
2. Taxable gross pay to date is 52000.00, therefore exceeds the value in Column 2. Continue to step 3.
3. No, therefore:
   
   
   1. 52000.00 - 50000 = 2000.00
   2. 900.00 + 17866.66 = 18766.66
      
      

Step 5 - Calculate the tax due this period

Tax due to date, calculated in Step 4 minus Tax paid to date, noted in step 1 = tax due this period.

Example calculations

Example 1

Example 2

Example 3

Example 4