How to calculate Net Advances

There are multiple options to calculate Net Advances. You will need to choose which method suits your company best.

Applying the standard 32% deduction

You can choose to apply a blanket deduction of 32% (20% for tax & 12% for NI) the tax will be adjusted in the next payslip. For example:

Gross: £500
Net: £500 x 68% = £340

Note – Please note, you will need to add the gross pay and a Net deduction to the payslip to ensure the payment is reported to HMRC & the employee does not receive payment twice.

Applying the following month's thresholds

As the payment will be processed in the following month's payroll, you can choose to apply the following month's thresholds.

Example

Employee missed a £500 bonus in July:

1. Check August's Net pay prior to adding the £500 bonus.
2. Add the £500 bonus for July.
3. The Net to pay is the difference between the August Net pay after adding the bonus, and the Net pay prior to adding the bonus.

Net Advance to pay = £1,865.69 - £1,425.69 = £440

Note – Please note, you will need to add the gross pay & a Net Deduction to the payslip to ensure the payment is reported to HMRC & the employee does not receive payment twice.

Applying the thresholds for the month they should have received the payment

This would be the most accurate method for tax & National Insurance.

Example

Employee missed a £500 bonus in July, their gross pay should have been:

Salary: £2,000
Bonus: £500
Total Gross: £2,500

You can use the HMRC PAYE Calculator to get the correct Tax & NI due.

Tax

1. Enter the tax code, period of pay and if the employee has a W1/M1 indicator.
2. Enter the Gross taxable pay that should have been paid i.e. £2,500.
3. Enter total Gross taxable pay & Tax paid to date – you can find these figures on the June payslip under the Year Total column for Taxable pay & Tax paid.
4. Previous tax not deducted due to regulatory limit – This would usually be £0 unless the employee's tax has reached the regulatory 50% limit.

In this example, the tax due should have been £290.20.

National Insurance

1. Enter the period of pay.
2. Enter the Gross NIC-able pay that should have been paid i.e. £2,500.
3. Enter the NIC Category Letter.

In this example, the Employee NIC due should have been £204.36.

Net pay calculation

Gross Pay: £2,500
Tax: £290.20
EE NI: £204.36
Net Pay: £2,005.44
Net Advance to be paid: £2,005.44 - the Net already paid 

Note – Please note, you will need to add the gross pay and a Net Deduction to the payslip to ensure the payment is reported to HMRC & the employee does not receive payment twice.