PAYE14065 - coding: coding functions: function CD: potential underpayments

This subject is presented as follows

Calculation by computer

Revised code operates later than computer calculation

Computer-calculated code basis altered

Taxpayer is Jobseekers Allowance claimant

Manual computation of potential underpayment

Calculation by computer

When the computer identifies a potential underpayment (PUP) it takes into account the ESTPAY and makes a calculation based on the taxpayer’s highest rate of tax.

Example

In all cases the computer assumes 10 days pass before the new code operates. In this example the code for a taxpayer with ESTPAY of £14100 (liable at basic rate) is changed from 3756 (code 375H) to 3358 (code 335H) on 25 September.

Reduction in allowances (392) x basic rate 22% = Full year underpayment £86.

Full year underpayment x days since 6 April + 10 / 365 days (86 x 182 (172+ 10) / 365) = Potential underpayment to date £42.

Revised code operates later than computer calculation

The computer always calculates the potential underpayment in the same way. Therefore, if the revised code is operated much later than the computer calculation, the potential underpayment will be wrong. Where this happens

• Calculate the potential underpayment manually (see below)
• Use PUP to enter the amount in the DEDNS field. Further advice is available at PAYE14030

Computer-calculated code basis altered

If you alter the basis of a code calculated by the computer, for instance, change a Week 1 basis to cumulative or vice versa, the computer will not recalculate any potential underpayment.

In such cases

• Calculate the potential underpayment manually (see below)
• Use PUP to enter the amount in the DEDNS field. Further advice is available at PAYE14015 and PAYE14030

Taxpayer is Jobseekers Allowance claimant

The computer will not calculate any potential underpayment where the taxpayer is a Jobseekers Allowance claimant.

The Benefit Office will automatically calculate any underpayment arising

• When the claim ceases

Or

• At 5 April

Manual computation of potential underpayment

If you need to calculate a potential underpayment manually, or give an explanation to a taxpayer, follow the example below.

On 5 June the net coding allowances for a basic rate taxpayer changes from 3756 (Code 375H) to 3358 (Code 335H).

Potential underpayment for full year (392 x 22%) is £86.

Proportion from 6 April to date of change of code where Week 1/ Month 1 to be applied is (8/52) £14.