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A tolerance has been used since the introduction of PAYE to accommodate the rounding up and down that automatically happens when the tax tables are used to calculate weekly/monthly tax deductions. For the past two decades, this tolerance has been £50.
In September 2010, the tolerance was temporarily increased to £300. It covered 2007/08, 2008/09 and 2009/10 while HMRC worked on the reconciliations for those years.
Work to clear the years is largely complete, and the department says it is now in a position to manage the end-of-year reconciliation for 2010/11 without an increased tolerance.
The tolerance for 2010/11 will therefore revert to £50, meaning that where an underpayment of tax of more than £49.99 arises for the year 2010/11, a tax calculation will be sent to the taxpayer.
Commenting on the implications of the new tolerance, the head of Payroll Alliance, Linda Pullan, said, ‘Now that HMRC’s new computer system, NPS, is carrying out the annual PAYE reconciliation and the annual tolerance level for underpayments of tax has been reduced from £300 to £50 for 2010/11, taxpayers will see more and more P800 tax calculations being issued’.
Ms Pullan added that ‘this is particularly relevant where employers are operating weekly or multi week payrolls and have processed a week 53, 54 or 56 as NPS does not recognise these additional weeks and therefore makes no additional allowance for the underpayment of tax’.
