Payment Calculations

The Pay Run brings together payment totals in the Employee and HMRC payments sections. This page explains how calculations are made, leading to the Total cost to Employer. It also explains how Employment Allowance and Apprentice Levy are set up.

Employees - Net Pay

Total employee net pay: amount to be paid to all Employees including all payments and deductions.

HMRC Payments

Payments are due to HMRC from:

Tax

Comprises deductions from Employee pay for income tax.

National Insurance

Deductions for Employer (including Class 1A) and Employee NI contributions; may be reduced by the Employment Allowance. See below for information on the Employment Allowance setup.

Student Loans

In this category deduction is made for the repayment of Student loans.

Apprenticeship Levy

Comprises 0.5% of gross pay less an annual allowance - see below.

Third party payments

Pensions

Employer and Employee pension contributions are displayed in Total pension contributions.

Benefits

Employer and Employee contributions to third party benefits are displayed in Total benefit contributions.

Court Orders

The total amount deducted from Employees which is due to third parties as a result of Court orders will be displayed in the Total court orders field.

Payment Details

Detailed breakdowns of all payments are presented in the Payroll Control Reports' Payments section.

Note on Employment Allowance and Apprenticeship Levy Apportionment

Employment Allowance

Claims for Employment Allowance are recorded on the Employer record

When a new Payroll is created, if this field is checked, the current value of the Employment Allowance will be applied to any monthly permanent payroll. If not checked, Employment Allowance is not applied. If you wish to change the amount assigned to any payroll it can be manually updated on the Payroll. The allowance is then deducted from Employer NI bill by Pay Run until used.

Apprenticeship Levy

Each UK Employer must pay, through HMRC, a levy for training; this is the Apprenticeship Levy. A percentage (currently 0.5%) of the total pay bill is paid vs. each pay run, less an allowance.

The allowance (currently £15,000 p.a.) is provided per Employer, and a portion of it applied to each Pay Run. Where Employers form a related group the period's allowance (currently £1250 per month) is shared among the Employers. The total levy is then assessed when submitting an EPS, which includes all Pay Runs in a tax month.

To set up the annual Levy allowance, go to the Employer record and enter the amount in the field Apprenticeship allowance apportionment - e.g. £15,000 for a single Employer, or shared if there are some related Employers.

This allowance is then applied across all Pay Runs in a month for the Employer when the EPS is submitted in the month following its Pay Runs.

Although the Levy is only confirmed for the EPS, we generally wish to collate financial ledger information as soon as payroll is run. For this we calculate the Levy we expect to accrue for each Pay Run - comprising 0.5% of employee income less that Pay Run's share of the allowance. We therefore estimate how much of the allowance should be allocated for each Payroll.

By default all of the Levy allowance is assigned to the Monthly Permanent payroll but you may change this - go to the Payroll record and edit the field Estimated apprenticeship levy allowance. If you make this change you should ensure that the total allowance across all payrolls for an Employer equals the total allowance apportioned to that Employer.

This estimated allowance is then broken down by tax month and assigned to Pay Runs equally within each tax month. This estimated allowance is then deducted from the 0.5% Apprentice levy charge to estimate the Apprenticeship Levy from a Pay Run. This estimate is provided for the general ledger report.

An additional pay run will not accrue any apprentice levy allowance. This will not affect any levy payments (these are calculated on the EPS from the combined value of the levies from main and additional runs). It may however affect any pay ledger apportionment of levy related costs.

The levy is calculated not per Payroll but per Employer, so the figure remains an estimate until the EPS is created. Generating the EPS calculates an actual levy amount for the employer and the period - this actual amount is submitted with the RTI return.

Normally the estimated and actual allowances will be identical. They will always be identical where:

You have only one Employer and one Payroll; or
Each Employer has a monthly pay bill of more than £250k, or 200 times the allowance apportionment.

There may however be occasional cases - e.g. where the pay bill fluctuates around the threshold - where one Payroll is unable to use its estimated apportionment and it is used by another payroll. The company enjoys the benefit of reduced levy tax but the ledger report will then need to be adjusted.

We provide a report to reconcile any differences between the estimated levy on each Pay Run and the total levy actually paid for the month. You can then use this report to update the pay ledger if any variance should arise.

Apprenticeship Levy Variance Report - Example

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