PAYE11100 - Coding: codes: how they are used and calculated: potential underpayments
This subject is presented as follows
System-calculated code basis altered
Individual is a Jobseekers Allowance claimant
Manual calculation of potential underpayment
Calculation by system
When the system identifies a potential underpayment it takes into account the estimated pay and makes a calculation based on the individual’s highest rate of tax. The system will include a potential underpayment where the individual is liable to tax, if the individual is not liable the system will not calculate a potential underpayment.
In determining a potential underpayment, the system compares the new calculated code with either the last code recorded against a primary employment or, where there is no previous primary employment coding record, then the Start Tax Code recorded on the Employment Details screen. You will not be able to update a potential underpayment. Reconciliation at the end of the year will establish the actual amount of any underpayment.
Example
The system assumes 10 days pass for codes with suffix T and prefix K and 31 days for cases with suffix L, P or Y before the new code operates. In this example the code for an individual with Estimated pay of £14100 (liable at basic rate) is changed from 3756 (code 375T) to 3358 (code 335T) on 25 September.
|
Net coding allowances before amendment Less New net coding allowances |
3756 3358 |
|
Reduction in allowances |
398 |
Reduction in allowances (398) x basic rate 20 per cent = Full year underpayment £79.60.
Full year underpayment x days since 6 April + 10 / 365 days (79.60 x 182 (172+ 10) / 365) = Potential underpayment to date £39.69.
System-calculated code basis altered
If you alter the basis of a code calculated by the system, for instance, change a Week 1 basis to cumulative or vice versa, the system will recalculate any potential underpayment.
Individual is a Jobseekers Allowance claimant
The system will not calculate any potential underpayment where the individual is a Jobseekers Allowance claimant.
The Benefit Office will automatically calculate any underpayment arising
- When the claim ceases
Or
- At 5 April
Manual calculation of potential underpayment
If you need to calculate a potential underpayment manually to give an explanation to an individual, follow the example below.
On 5 June the net coding allowances for a basic rate individual changes from 3756 (Code 375L) to 3358 (Code 335L).
|
Net coding allowances before amendment Deduct Net coding allowances |
3756 3358 |
|
Excess allowances |
398 |
Potential underpayment for full year (398 x 20 per cent) is £79.60.
Proportion from 6 April to date of change of code where Week 1 / Month 1 to be applied is £79.60 x 61 days + 31 days /365 days = £20.06.
Remember that the system assumes 10 days pass for codes with suffix T and prefix K and 31 days for cases with suffix L, P or Y before the new code operates.
