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How do i calculate my tax and ni

Please note also that directors have their NI calculated against annual limits using their cumulative pay.

Both packages are probably right, though we can't speak for other supplier's software. There are two different methods for calculating NI. Sage duplicates the manual tables. 12Pay follows the HMRC recommendation for payroll software and uses the "exact percentage method". You can validate 12Pay's answers at this HMRC web page:

12Pay has never been found to calculate tax incorrectly, by even a single penny. If you don't agree with the results it is producing check the following are all correct. The employee's.

  • Tax code
  • Week 1/ month 1 indicator on their tax code
  • Pay and tax with previous employers on their P45 when they started
  • Previous taxable pay and tax in this employment
  • Taxable pay this period
  • The current period-end date
  • The type of payroll (weekly/monthly/2 weekly/4 weekly)

All of those things need to be correct to get a correct answer for tax this period. If you still don't agree with 12Pay's calculations, having checked those things, see what answer you get from the following website:

If after that you still don't understand where the problem lies please contact us with the full details (as outlined in the bulleted list above)

You can create any number of your own payment or deduction codes for this kind of requirement. The following screenshots show a code being created that can be used to pay mileage @35p/mile (important note, once you've added a new payment/deduction code you have to exit the software and restart it

before you can use that code on an employee):

Note that the boxes for Taxable, NI-able, and Pensionable are not ticked, but the boxes for Standard payment and Variable payment are ticked. This allows this payment/deduction code to be applied either on the employee's Pay tab as a regular payment, or on the employe's "this period" tab as a one off.

To pay miles at 35p a mile enter the number of miles in the Units box on the employee payment tab when making a payment, or leave the units blank and just enter a value in the Pay box when making the payment.

In this instance we've also ticked the Hours/Rate/Pay box on the advanced tab. This means that when there are units and a rate they will be shown on the payslips as well as the actual calculated payment.

Probably you have ticked the "Directors NI" box, or you have omitted to tick it when it ought to be ticked. The rules for calculating Directors' NI are completely different to the rules for calculating regular employees' NI.

Directors have NI calculated for their total annual salary using the annual NI limits, then any NI paid previously is subtracted to arrive at the current NI deduction. So until a director's cumulative pay in the tax year has exceeded the annual NI earnings threshold they will not pay any NI.

Regular employees, on the other hand, have each payment period treated in isolation so they will tend to pay similar amounts of NI each period as long as their earnings remain steady.

Category: Taxes

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