Tax differences sometimes occur when moving payroll software, this is due to something often referred to as ‘roundings’ – how numbers are rounded up or down and the calculation methods used to do the roundings.
The discrepancies often relate to payroll systems using two different methods to calculate roundings. Older systems use a method of calculation known as the ‘Table method’ and more modern systems use the ‘Exact percentage method’.
Paycircle uses the exact percentage method for both tax and National Insurance. The table method is used by older payroll systems that haven’t updated to the exact percentage method. The method of calculation preferred by HMRC is the exact percentage method.
Tax roundings should never be more than 40p per employee and will normally correct themselves via RTI after running two to three parallel runs.
It is advisable to run at least one payroll in parallel, particularly for larger payrolls, to check for potential differences. Where there are some tax differences, you may opt to amend your employee’s Year to Date figures before going live with your new system.
If, when you go live with your new system, your employees’ tax numbers still vary a little, you may want to let them know that you are changing payroll software or provider and reassure them that it’s quite normal for there to be small differences and that their tax position will align itself over the tax year.
For more detailed information on calculation methods you can read HMRC’s Guidance for Software Developers.