Hello Robin,

Thanks for using Community Hub. 

The article you are using is the correct article for these steps.

If you're unable to see the leaver on the Employee list, you need to Show leavers on your employee list.

Once you have located the leaver, you can remove their leave date in the Employment tab in the Employee record. 

This will allow you to follow the steps on the first article. 

If this helps, please click Verify Answer.

Regards, 

Keegan 

Sage UKI 

Thank you for the reply - I managed to muddle my way there.

The next problem I'm running into is why the PAYE is giving the 'wrong' amount if I use 0T w1m1 but the correct amount if I just use 0T.

Gross pay £10256.50 which should show £2,051.20 PAYE but if I use 0T w1m1 as the article suggests it shows £3,474.06 which is 33.87%

With W1M1 it ignores the tax paid to date and bases the tax solely on that payment which is what HMRC says you should do for payments after someone leaves.

How do you know what the "correct" amount it?

Gross pay of £10,256.50 is going to be going into the higher rate tax band so some will be at 20% and some at 40%, hence the overall 33.87%

Thanks for replying Robert.

Why is some of the £10k taxed at 40%? Surely it's wholly taxed at 20% and is the only payment to be made this tax year.

This is for a one off settlement agreement and we have a net figure to pay the employee and to gross it up I used 20% tax and 8% NI on the whole amount.

If some of it is to be at 40% how do I work out how much is at the higher rate - do I have to assume the £10k is a monthly payment and work out a tax deduction based on that annual figure?

Even with this £10k payment the employee is unlikely to pay 40% tax on any of their income this tax year.

Hi Robin,

This would need to be processed on W1M1 as the P45 has already been issued. A letter or payslip showing the value would be sufficient. When the employee goes on to new employment HMRC will send a P6/P9 notification to the employer with details of the extra payment.

Regards,

Andy
Sage UKI

Tax is worked on an "incremental" basis: the limits for the year are divided for the payment period.

The tax limit for 20% is £50,270 per year or £4,189.17 per month

The higher rate band is between £50,270 and £125,000 per year, or between £4,189.17 and £10,416.67 per month - with 0T there is no tax free amount and the whole amount is subject to tax.

There is a problem with grossing it up by 20% and an extra 8%: the NI is on the whole amount, and Tax is on the whole amount, which means you will need to gross it up even more.

The easiest way to do this is to create a Net Pay element for which you would specify the amount you wish to pay and the payroll program will then converts it into the gross amount needed to get that net amount taking into account TAX and whatever else you say, eg NI.

I've done PAYE as 20% on the whole £10k and NI as 8% on the whole £10k which is what the employee will pay.  With the Personal Allowance the employee will not be over the £50k threshold and will not be paying any tax at 40%.

If we have to Gross it up even further to account for 40% tax then the Gross Pay will be higher, which means we need to account for more NI and then even more Employers NI.

This is a one off final payment to the employee - if, for whatever reason, they do end up earning over the £50k threshold then they will be able to pay any extra 40% tax through their PAYE with their current employer (not us)

Some further guidance that might be useful: https://www.gov.uk/employee-leaving

Paying an employee after giving them a P45

If you have to pay an employee after they leave (including someone you’re giving a taxable redundancy payment over £30,000):

• use tax code 0T on a ‘week 1’ or ‘month 1’ basis (use the code S0T if they’re taxed at the Scottish rate or C0T if they’re taxed at the Welsh rate)
• deduct National Insurance (unless it’s a redundancy payment) and any student loan repayments as normal - but if it’s an ‘irregular’ payment like accrued holiday pay or an unexpected bonus, treat it as a weekly payment
• report the payment and deductions in your next FPS, using the employee’s original ‘Date of leaving’ and payroll ID, and set the ‘Payment after leaving’ indicator
• give the employee written confirmation of the payment showing the gross amount and deductions
• add the additional payment in the ‘Year to date’ field if the payment is in the same tax year

The payment should be the only one in the ‘Year to date’ field if it’s being paid in the next tax year.

You must not give the employee another P45.