When we want to calculate Income Tax manually, there are two tables that are essential: The Pay Adjustment Tables (Table A) and The Taxable Pay Tables (Tables B-D)
Why calculate tax manually?
Simply, if we cannot do it manually, then how can we check what our payroll software is doing for us? Plus, if an employee queries their tax calculation, it is not right to reply that it must be right because the payroll system says so.
Therefore, I believe now as I have always believed that it is necessary to be able to calculate Income Tax manually. Not for every employee but just occasionally and certainly at the start of the tax year when software has three types of UK Taxpayer from 2019/20:
- A Scottish Taxpayer
- A Welsh Taxpayer and
- A rUK Taxpayer (anyone that is not Scottish or Welsh!)
The Tax Tables
Both of the following are necessary:
The Pay Adjustment Tables
Tables A were published by HMRC on 07 March 2019.
There are reference to the S and C prefix codes, however, fundamentally, they are the same tables that were issued in 1993 in terms of the value that are quoted in them. They still have the same restrictions in that the tables will only give is the pay adjustment up to 500 and codes above this have to use the 500 value in the box in the right-hand corner and only ever take one figure from the table.
So, for example, a manual pay adjustment on tax code of 1250L in Week 1 of the tax year would be calculated:
- 2 x 500 from the box (96.16 x 2) = £192.32
- 1 x 250 from the table = £48.25
The pay adjustment in Week 1 on a tax code of 1250L is a free pay value of £240.57.
The Gov.UK announcement about the publication of Tables A says:
Use these tables to manually calculate free pay for codes with the suffix L, P, T or Y (not NT) and to work out additional pay for codes with prefix K.
This is interesting in itself given that suffix P was only valid until 05 April 2015 and Y was only valid until 06 April 2016 (see PAYE11075). You should not have any of these suffixes on your payroll if your payroll system even allows them to be entered. They are not incremented each year and, if you do have any, they are almost certainly incorrect by now.
Tables B – D
These were also issued on 07 March 2019 and look very different from when I first started in payroll. There are not only tables B – D but also the necessary tables to cater for Scottish and Welsh Taxpayers. There are all sorts of tables:
- C1, 2 3 and 4 and
- D1, 2, 3 and 4
Even to this day I manually calculate my own payslip using the above tables. It’s not that I don’t trust the software, it’s just that I like to keep my hand in as it were. For 2019/20 I recommend that every month you take a rUK, Scottish and Welsh Taxpayer and find out what your systems are doing for you.