Consider a simple employed person in the UK, with nothing particularly unusual or exciting.
At the end of a given (financial) year they look at their payslips and they can see (amongst other things):
- The total amount of income they were paid.
- The total amount of PAYE tax that was taken.
And they can look at their P60 and see the same 2 figures.
I had assumed that if I took the 5 minutes to do the maths, then I ought to be able to satisfy myself that over the whole year, the PAYE tax taken matches the obvious interpretation of the tax bands. Except ... mine don't. 😢 They're consistently a few pounds out.
I'm unsurprised that the month-by-month PAYE is a bit out. For various reasons my month-to-month pay varies quite a lot (due to weird bonus structures and pay incremental rises), so it's going to be impossible for Sage to predict my final tax bill mid-year. ... But I would have expected that in the final pay-check of the (financial) year, Sage would now have the definitive annual total, and could adjust the PAYE correctly to fix the whole year?
So I would expect that once you look at the whole year, it would be exactly correct.
To take a specific example, supposing that I were to earn £62,143.28 (invented figure) in 2020/1, in England.
Then I would expect to pay:
- 0% = £0 on the first £12,500 (£0.01 to £12,500.00)
- 20% = £7,500 on the next £37,500 (£12,500.01 to £50,000.00)
- 40% = £4857.312 on the remaining (£50,000.01 to £62,143.28)
For an expected annual total of £12,357.31 (or possibly 32p, idk) I could also imagine any of the following:
- £12,357.32 (round up)
- £12,357.20 (round income to the nearest whole-pound)
- £12,357.00 (round income to the nearest whole-pound, then round down)
But I'm seeing something like £12,352.40 ... it's "way" out ... far more than I could expect from an rounding change.
So the specific question is: Should I actually expect the total of my PAYE to be exactly £12,357.31, based on this setup? or is UK PAYE tax actually a little fuzzy in the details/has more rounding than one would guess.
Context: I can foresee 3 likely possibilities:
- The HMRC system is exact, but Sage is less exact & everyone involved knows this ... but most people don't sweat a few £s discrepancy ... you can submit a TaxReturn if you care.
- The HMRC system isn't actually exact, but it always errs in individuals favour, and this is considered fine.
- HMRC and Sage are exact, and the fact that I can't get them to match tells me that they're accounting for something that I've missed ... and if I could find out what that was then I could make the numbers line up exactly.
Essentially, I want to know which of these realities I'm in, so I know whether I should spend additional time trying to find out what I'm missing.