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It is good practice to routinely check that the PAYE calculations are producing the correct results, especially at the beginning of the tax year when there are new settings and employees are being transferred from one tax method to another as they come off the PAYE method and change to an FDS method.

 

It is also necessary to check the PAYE when the PAYE appears to be incorrect.  Use the following steps ensure that the calculation of PAYE is correct:

 

Step 1 - Tax Setup

On installation, and at the beginning of each tax year, check that the tax settings are complete and accurate for the current tax year.  This includes the tax table, tax credits, and deductions.  For further information on how to access these parameters see: Tax

 

Step 2 - Check the employee master setup

Check the date of birth that has been setup in the employee master record, pension amounts processed, tax deductible amounts processed and eligibility for tax credits.

Check that the 'Tax Method' and the 'Tax Table Type' has been correctly setup for each employee.

 

Step 3 - Check that Transaction Codes have been setup correctly

Ensure that the correct Transaction Category is used when setting up Transaction Codes.  This will ensure that taxable amounts are included in the tax calculations and non-taxable amounts not included.  It will also ensure that a tax deduction is given when the amount is tax deductible or a credit given if a credit is due. Check that the P6 Fields have been correctly assigned to each Transaction Code.

 

Step 4 - Check the Tax Display

Go to the tax display for the employee and check through the calculation.  It is also useful to do reasonableness checks.  If the PAYE of an employee is unusually high or low double check the PAYE calculation using one of the tax display methods explained.

 

When going through the tax display pay particular attention to checking :

- that the FDS Tax Method is the correct method being used ie. Forecast, Average or Traditional PAYE method.  Remember that employees engaged during the current tax year should be on the PAYE method.

- Check that the number of periods being used is correct.  This may indicate a problem with how the payroll periods have been set up.

- Check that the tax table is coming through correctly

- Check the accuracy of accumulated figures to date for the employee

- Check that the tax credits, if any, are being correctly awarded