Information on the tax calculation in Sage 50 Payroll, and how to reconcile it.
Description
There are several reasons why an employee's tax can change, including:
- Their pay is higher or lower than usual
- HMRC asks 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 complete a manual calculation to check it against your software.
TIP: For more information about why your employee's tax changed, follow the reasons for incorrect tax article.
Resolution
Find out below how to reconcile tax on L, P, T, V and Y tax codes.
1. Note the required details
To complete a manual tax calculation, you must gather the information you'll use in the calculation. ▼ Click here for help with finding this information in your software.
TIP: If, for example, you're performing a calculation for week 45, you must note the values before you update records for week 45.
| Information required | Location in Sage 50 Payroll |
| Tax week and month | - Select Payroll, then Change Process Date.
- Enter the process date for the period you're checking.
- Note the tax week and month values.
|
| Pay Frequency | - Double-click the relevant employee on your employee list.
- Go to the Employment tab.
|
| Tax code | - Double-click the relevant employee on your employee list.
- Go to the Employment tab.
|
| Taxable gross pay to date | - Double-click the relevant employee on your employee list.
- Go to the Employment tab.
- Select the YTD Values button.
- Under the Tax Year Values To Date heading, note the Gross Pay for Tax.
|
| Tax paid to date | - Double-click the relevant employee on your employee list.
- Go to the Employment tab.
- Select the YTD Values button.
- Under the Tax Year Values To Date heading, note the Tax Paid.
|
| Taxable gross pay for the current period | - Select the employee on your employee list.
- Enter Payments for the employee to check.
- Go to the Summary tab and note the Taxable Gross Pay.
|
2. Calculate the pay adjustment to date
Go to Gov.UK to access the HMRC Pay Adjustment Tables. You can use these to check an employee's tax-free pay to date, up to any period of the year.
NOTE: If you'd like help with using this document, review pages two and three of it for guidance.
If you pay the employee fortnightly or 4 weekly, use the pay adjustment for the end of the second or fourth week. This isn't affected by which tax week your process date falls in.
To view examples of the pay adjustment calculation, ▼ click here.
To check the pay adjustment for an employee in week 45 where their tax code is higher than 500, for example 1257L:
| 1 | Divide the tax code into units of 500, and any left over amount. | 1257 from the tax code becomes two 500s, with 257 left over. |
| 2 | Look up the tax free pay from each unit of 500, and total them where applicable. | 500 in week 45 = £4,327.20. As there are two units of 500 in this code, we double this to £8,654.40 |
| 3 | Look up the left-over figure in the table. | 257 in week 45 = £2,232.00 |
| 4 | Add up the totals from Steps 2 and 3. | £2,171.25 + £8,654.40 = £10,886.40 |
The pay adjustment to date is £10,886.40 for a weekly paid employee in tax week 45.
- If the tax code divides exactly into units of 500:
- Look up the pay adjustment for one unit of 500, then
- Multiply the value in the bottom-right corner of the page in the Pay Adjustment Tables marked * by the remaining units of 500, then
- Add the two figures together
For example, to check the pay adjustment for an employee in week 45 with tax code 1500L:
| 1 | Pay adjustment for 500. | £4,327.20 |
| 2 | Two units of 500 remaining, 2 x the value marked *. | 2 x £4,327.20 = £8,654.40 |
| 3 | Add the two values together. | £4,334.85 + £8,654.40 = £12,989.25 |
The pay adjustment to date is £12,989.25.
3. Calculate the taxable pay to date
This calculation you need to complete at this step is:
- Taxable gross pay to date + taxable gross pay for the current period - pay adjustment
▼ Click here to view an example.
| 1 | Tax period | Week 45 |
| 2 | Tax code | 1150L |
| 3 | Taxable gross pay to date | £13,200.00 |
| 4 | Taxable gross pay for the current period | £300.00 |
| 5 | Total pay (3+4) | £13,500.00 |
| 6 | Pay adjustment | £9,960.30 |
| 7 | Taxable pay (5-6) | £3,539.70 |
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.
If you're not certain which table to use, check pages 2-4 in HMRC help book Taxable Pay Tables Manual Method - Tables B to D. To access this, go to Gov.UK.
Find out more about using each table below.
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 isn't available, add together the figures for two or more entries.
▼ Click here to view an example.
| 1 | Taxable gross pay to date | £3,539.70 |
| 2 | Tax due to date | Table B
£3,000 = £600.00
£500 = £100.00
£39 = £7.80
£600.00 + £100 + £7.80 = £707.80 |
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.
▼ Click here to find out more.
- In Table C1 for monthly or weekly, look up the pay period.
- Is the taxable gross pay to date more than the amount in Column 1 but not more than the amount in Column 2? Select the relevant option below for your next steps.
▼ If yes - Note the tax due for the relevant period in Column 3. This is the liability due on the amount in Column 1.
- Deduct the value in Column 1 from the employee's taxable gross pay to date.
- Look up this value in Table D - Higher Rate (Tax at 40%), ignoring any pence.
- Add together the tax due at 40% from Step 3 and the value you noted in Step 1.
▼ If no, use Table C2 - Deduct the value in Column 4 from the taxable gross pay to date.
- Look up this value in Table D - Additional Rate (Tax at 45%), ignoring any pence.
- Add together the tax due at 45% from Table D and the value from Column 5 in Table C2.
Example
An employee receives their pay weekly. It's week 45, and their taxable gross pay to date is £35,000.00.
- Table C1 > week 45. Column 1 = £32,625, Column 2 = £108,295
- Taxable gross pay to date is £35,000.00, therefore it's between the two values. Continue to step 3.
- Yes, therefore:
- £6,525
- £35,000.00 - £32,625 = £2,375.00
- £2,920.00 + £2.80 = £2,922.80
- £2,922.80 + £5,538.73 = £8,461.53
An employee receives their pay monthly. It's month 4, and the taxable gross pay to date is £52,000.00.
- Table C1 > month 4. Column 1 = £10,595, Column 2 = £50,000.
- Taxable gross pay to date is £52,000.00, therefore exceeds the value in Column 2. Continue to step 3.
- No, therefore:
- £52,000.00 - £50,000 = £2,000.00
- £900.00 + £17,866.66 = £18,766.66
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
▼ Click here to view examples for England and Northern Ireland.
Example 1
| 1 | Tax period | Month 3 |
| 2 | Tax code | 550L |
| 3 | Tax paid to date | £643.55 |
| 4 | Taxable gross pay to date | £4,000.00 |
| 5 | Taxable gross pay for the current period | £2,000.00 |
| 6 | Total pay (4+5) | £6,000.00 |
| 7 | Pay adjustment | £1,377.27 |
| 8 | Taxable pay (6-7) | £4,622.73 |
| 9 | Tax due to date | £924.40 - Table B |
| 10 | Tax this period (9-3) | £280.85 |
Example 2
| 1 | Tax period | Week 10 |
| 2 | Tax code | 543L |
| 3 | Tax paid to date | £456.28 |
| 4 | Taxable gross pay to date | £3,150.00 |
| 5 | Taxable gross pay for the current period | £350.00 |
| 6 | Total pay (4+5) | £3,500.00 |
| 7 | Pay adjustment | £1,046.10 |
| 8 | Taxable pay (6-7) | £2,453.90 |
| 9 | Tax due to date | £490.60 - Table B |
| 10 | Tax this period (9-3) | £34.32 |
Example 3
| 1 | Tax period | Month 8 |
| 2 | Tax code | 150L |
| 3 | Tax paid to date | £4,120.80 |
| 4 | Taxable gross pay to date | £23,625.00 |
| 5 | Taxable gross pay for the current period | £3,375.00 |
| 6 | Total pay (4+5) | £27,000.00 |
| 7 | Pay adjustment | £1,006.00 |
| 8 | Taxable pay (6-7) | £25,994.00 |
| 9 | Tax due to date | £6,130.93 - Tables C and D |
| 10 | Tax this period (9-3) | £2,010.13 |
Example 4
| 1 | Tax period | 43 - Paid fortnightly |
| 2 | Tax code | 1150L |
| 3 | Tax paid to date | £559.60 |
| 4 | Taxable gross pay to date | £11532.00 |
| 5 | Taxable gross pay for the current period | £562.00 |
| 6 | Total pay (4+5) | £12,094.00 |
| 7 | Pay adjustment | £9,517.62 |
| 8 | Taxable pay (6-7) | £2,576.38 |
| 9 | Tax due to date | £515.20 - Table B |
| 10 | Tax this period (9-3) | -£44.40 |
examples for England and Northern Ireland.
Scottish tax example
Scottish tax uses more deduction rates, as there are more tax bands. Tax codes, bands and rates for Scotland.
▼ Click here to view an example of a Scottish tax reconciliation.
- Gross Taxable Pay for the Year = £33,037.92
- Tax Code = S1257L
- Using the HMRC Pay Adjustment Tables, their free pay allowance for the year is:
- (2 x the number at the bottom right for 1000) + 1 entry for 257
- (2 x £5,000.32) + £2,579.20 = £12,579.84
- Total taxable pay:
- Gross taxable – free pay allowance
- £33,037.92 – £12,579.84 = £20,458.08
- Remove the pennies, and the taxable pay is £20,458
- Then use the Scottish Taxable Pay tables (pg 12 onwards) to work out the tax:
- Looking at table C2, they have some tax at 19%, some at 20% and some at 21%
- The total tax due up to £13,118 (the figure in Column 4) = 2,601.98 (the figure in column 6)
- The remainder is at 21%
- The amount at 21% = £20,458 – £13,118 = £7,340
- The tax due on £7,340 (using table D2) = £1,533 + £8.40 = £1,541.40
- Total Tax Due = £2,601.98 + £1,541.40 = £4,143.38
Week 1 / Month 1 tax codes
If an employee's tax code uses week 1 / month 1, their tax calculation isn't cumulative. Instead, it's based on the taxable pay for the current period, and the free pay allowance for the first period of the current tax year. It doesn't take any previous pay into account.
NOTE: If you pay employees fortnightly, use the week two free pay allowance. If you pay four weekly, use the week four free pay allowance.
▼ Click here to view an example calculation.
| 1 | Tax period | Month 3 |
| 2 | Tax code | 1100L Week 1 / Month 1 |
| 3 | Tax paid to date | N/A |
| 4 | Taxable gross pay to date | N/A |
| 5 | Taxable gross pay for the current period | £2,000.00 |
| 6 | Total pay (4+5) | £2,000.00 |
| 7 | Pay adjustment | £917.43 (Month 1) |
| 8 | Taxable pay (6-7) | £1,082.57 |
| 9 | Tax due to date | £216.40 - Table B |
| 10 | Tax this period (9-3) | £216.40 |
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