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Tax limited to 50% of all taxable pay

Article ID
11938
Article Name
Tax limited to 50% of all taxable pay
Created Date
1st January 2019
Product
IRIS PAYE-Master, IRIS Payroll Business, IRIS Bureau Payroll, IRIS GP Payroll, IRIS Payroll Professional, Earnie, IRIS Earnie IQ, IRIS P11D Organiser, IRIS Bookkeeping, IRIS GP Accounts
Problem

I've had instruction to change an employee tax code from HMRC. Now when I process payroll they are having half of their pay taken in tax.

Resolution

In the 2105/16 tax year HMRC changed the legislation on all tax codes so the maximum amount of tax is limited to 50% of all taxable earnings.

This is to prevent situations where a change in tax code during the tax year pushes an employee into negative net pay, which is a difficult situation to deal with in payroll.

If an employee changes tax code during the year it is likely they will need to have extra tax deductions to “catch up” to the YTD tax due the new tax code dictates. Now, rather than trying to take all of this tax in one go, HMRC have stipulated that the maximum tax deduction will be 50% of their taxable earnings. With this in place when an employees tax code changes, the extra tax due can be spread out over several pay periods.

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