Letters


Best payroll letter wins a bottle of Laurent Perrier Champagne

Winning letter

Help required on grossing up

I wonder whether you can help. Could you please let me know where I can find a calculator for grossing up a net payment or instructions on how I can do this manually. I have been all round the Inland Revenue website, and I have searched Directgov websites and I find loads of information on related subjects but nothing on how to gross up a net figure.

Pat Beharie
Payroll & Benefits Supervisor
Vantis plc

We asked Simon Parsons to respond and his reply follows:
The challenge with grossing up a payroll net figure is the impact of the consequential fiscal calculations – tax and National Insurance Contributions. There are a number of factors that cause this impact: the individual’s personal tax allowance; where the higher tax band falls, especially in a tax year where we have now had three different higher rate tax bands notified, all applying at different calendar points but all of which back date to 6th April 2008.

The additional complication is that where the employer is perceived to be meeting the tax liabilities of the employee, the additional amount in itself becomes taxable and NI-able. So the complication is extended by the impacts of NIC values in relation to where the Lower Earnings Limits, Earnings Threshold, and where the Upper Earnings Limit fall.

From April 2009 this will be further complicated by the introduction of the Upper Accrual Point. Then this is further complicated by virtue of the method of NIC calculation, whether that be table or exact percentage calculation methods.

All in all, any true gross-up calculation will have to take into account the bandings of 0%, 20% and 40% for tax purposes, combined with the NIC elements of 0%, and reduced amounts for contracting out purposes but generally 11% and then the 1% addition over the UEL.

And to top it all the tax calculation can be further complicated on the basis of tax being assessed by the employee, or in other words, whether they are taxed on a week1/month1 basis or on a cumulative tax basis.

Gross-up process and features should form part of a good payroll software provision. To undertake the task manually would require multiple and circular repeating calculations, with additional subsidy amounts being added to make the difference between the net target amount and the actual net amount, then the calculations undertaken again until the target net amount is achieved. This is virtually impossible and extremely time consuming to undertake by hand.

Excel could be used but you need to be careful with rounding and banding requirements as tax is calculated in gross values in whole pounds and NIC could be based on every penny if the exact percentage method is being used. I would suggest exploring with your payroll supplier or buying an affordable desktop product.

Renting option not the first

I read with interest the ‘Room to rent’ article ( Payroll World, May 2008). While I agree that the idea behind it is simple – as many of the best ideas are – the concept is not as new as one might expect. The idea of deploying a software rental modal is one that we at MidlandHR have been offering since our inception in 1984, precisely because of the benefits that you so rightly outline, especially in terms of scalability. Of course the concept has moved on with the advent of the internet, to become web-based, but the basic premise is the same.

It is also worth noting that Software as a Service is not just a sensible option for smaller companies, but in our experience benefits organisations of all sizes. What is vital in offering this model is making sure that sensitive employee information is kept secure at all times.

In its next incarnation it will become known as ‘cloud computing’, with organisations tapping into the cloud to access applications on demand, but it is only with the maturing nature of the internet that this will become possible.

Richard Thomas
MidlandHR

HAVE YOUR SAY
We welcome letters, ideas for articles, snippets of news, or suggestions for interviewees in our features.

We do our best to reply to technical queries, in cooperation with HMRC and others, and with permission of the originator these may be published on the Q&A or Writeback page.

Please note, however, that we do not have the resources to run a helpline from the editorial office.

Please ensure that all enquiries are submitted to editorial@payrollworld.com

Don’t forget that the writer of the best letter each month wins a bottle of Champagne!

< Top >