If you need to make an off-cycle payment or missed payment to an employee, you can process an advance to the employee and enter this into the next payroll to ensure the payment is taxed and reported correctly.
There are several ways to calculate a net advance.
Choose the method that best suits your company's payroll process.
Apply the standard 28% deduction
Use a standard deduction of 28% (20% Income Tax and 8% National Insurance). Any tax differences will be reconciled in a future payroll.
Example
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Gross payment: £500
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Standard deduction: £500 × 28% = £140
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Net advance: £360
If you're processing a missed payment of £500 in an off-cycle payroll:
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Add £500 as a Gross addition to the employee's payslip.
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Add £360 as a Pay advance (net deduction).
Apply the following month's thresholds
If the off-cycle payment is being processed in the following month's payroll, you can calculate the net advance using that month's tax and National Insurance thresholds.
Example
An employee missed a £500 bonus in July.
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Check the employee's August net pay before adding the bonus. In this example, it's £1,000.
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Add the bonus as a Gross addition.
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Calculate the employee's new net pay.
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The difference between the original and updated net pay is the net advance.
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Add the net advance as a Pay advance (net deduction).
Apply the thresholds for the month the payment should have been made
This is the most accurate method because it uses the tax and National Insurance thresholds that applied when the employee should have received the payment.
Example
An employee missed a £500 bonus in April. Their April gross pay should have been £2,500 (£2,000 salary plus £500 bonus).
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Use HMRC's Income Tax and National Insurance calculators to determine the correct deductions.
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In this example:
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Income Tax: £290.90
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National Insurance: £116.16
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The correct net pay is £2,093.64 (£2,500 minus £406.36).
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Subtract the net pay already paid in April to calculate the net advance.
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Add the £500 as a Gross addition.
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Add the calculated Pay advance (net deduction).
Add a Net Advance to an Employee's Payslip
When processing an off-cycle payment, add both the gross payment and the pay advance (net deduction). This ensures the payment is reported correctly to HMRC while preventing the employee from being paid twice.
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From the left menu, go to Payrolls.
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Open the relevant draft payroll.
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Select the employee.
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Click Add pay item > + Gross addition.
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Select the appropriate Type of addition.
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Complete the required fields, including the Amount.
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Turn Pensionable off if the payment shouldn't be pensionable.
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Click Add gross addition.
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Click Add pay item > - Net deduction.
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Select Pay advance from the Type of deduction dropdown.
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Enter the Amount.
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Click Add net deduction.