Common Causes for PAYE to calculate differently than expected

NOTE: If ever you are unsure of the PAYE amount that the system calculated, view our detailed Tax Calculation of the employee in question (view our guide here).  Review this against your own calculation or reach out to your tax practitioner to ensure that the correction is correct.

The below are some of the most common issues identified when clients query their PAYE being either to high or to low:

Incorrect IRP5 Start date:

We find that especially on new employees, their start dates on the (Employee, Employee details screen) play a major role in the calculation of tax. 

• If you are adding this employee later in the tax year, but you set the IRP5 start date as the 1st of March or original start date, then the PAYE will average out one periods worth of income over a number of months, and as the income for the other months are not on the system, the system can not take it into consideration for the calculation.
• The start date might be incorrect, showing a smaller period employed (example: my period end date is the 25th of the month - and I entered the start date as the 25th of this month as oppose to the 1st of the month or the 26th of the previous month) but you processed a full basic salary for only this small portion worked.  This will inflate the annual taxable income, and the employee will be taxed severely.

Incorrect Tax Status:

The tax status can be found under Employee, Employee details in the Employment details section.  It is just under the IRP5 start date:

Different tax methods have different ways of calculating tax, here are just a few examples:

• Statutory Tables uses the  Average Tax Method
• Periodic/Part time will tax you at a flat rate of 25%
• Independent contractor  won't calculate tax as they usually get taxed in their own personal capacity

Please reach out to your tax practitioner if you need more clarity on the different tax statuses and how each of them work.

Bonuses:

As Bonuses are seen as an irregular income they get added to the annual income when calculating the values, this can sometimes inflate the tax.

Employees that are 65 or 75 years old:

These employees get additional tax rebates and credits that can decrease their PAYE.

Fluctuation of income between Periods:

If your employee received an amount over the PAYE threshold in one month, and in the next month the amount is substantially less, this can result in a negative PAYE value to calculate (this is a common appearance for employees on Maternity Leave or employees that went through lock down processes).

In a similar way, if the employee was earning below the tax threshold in and then got a substantial increase in the next period, it might take a few months for the average tax calculation to reach an annual amount that it above the tax threshold.