Tax Refunds and Tax Funding

When you process pay for your employees, sometimes they might receive a refund on tax. This can happen for several reasons, particularly if they had paid too much in an earlier period since tax calculates cumulatively. Let's take a look.

Tax Refunds and the P32

Normally when you process your payroll, any tax refunds are accounted for on your P32. Any tax refunds reduce the amount of tax due to HMRC on the P32, and therefore reduce your liability for that month.
 TIP: Check you're using a correct processing date If you believe a tax refund is shown incorrectly.

 EXAMPLE: 

Employee 1 has paid £100 in tax this month.

Employee 2 has received a tax refund of £20 this month.

The tax on the P32 will show a tax liability of £80 for that period. 

Tax Funding

In some cases, you may find that you're unable to pay employees their tax refunds. This could be if you have many tax refunds to pay at once, or if the amount of the refund is high. 

If so, you might be eligible to claim tax funding from HMRC and can Apply for financial help for an employee tax refund on gov.uk.

If you're eligible for tax funding from HMRC, you can enter the amounts of the tax funding received in Sage Payroll >

When you run the P32, the values for any tax funding entered appear at the bottom of the report. This value is then added back onto the value to pay to HMRC.

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