Tax Adjustment
Tax Adjustment is how anything the payroll did not calculate gets into a man's tax record for the year: tax he already paid before he joined, a correction to a wrong deduction, or a rebate he is entitled to. The next payroll run reads it and collects accordingly.
What it is for
The payroll run does not calculate a man's tax for the period in isolation. It projects his taxable income over the rest of the tax year, finds the band that projection falls into, works out the tax for the whole year, takes off the tax already accounted for this year, and divides what is left over the periods still to be run. That is why one correction in July quietly settles itself across the remaining months instead of hitting a single payslip.
Both of those yearly figures, the taxable income already earned and the tax already accounted for, are read from the man's tax record for the year. Every payroll run adds to it. This screen is the only other thing that can.
So it is one screen for three distinct jobs, which is what the Tax Adjustment Type is for:
- Tax Opening is what a man brings with him. He joined in October having earned eight months of salary elsewhere and paid tax on it, or the client went live in January with half a tax year behind them. Enter the income already earned and the tax already deducted, and the next run picks up from there instead of treating him as though the year started now.
- Tax Adjustment is a correction. Something was deducted wrongly, or a wage type that should have been taxable was not. A positive amount tells the system more tax has been accounted for than the runs recorded, so less is collected over the rest of the year. A negative amount does the opposite.
- Tax Rebate is an amount the man is entitled to have set against his tax. It reduces what is still to be collected from him over the remaining periods.
Two rules to know. The adjustment cannot be dated earlier than the start of the man's first recurring salary record, and the screen refuses it and names the date, because an adjustment made before he had a salary structure has nothing to attach to. And the Transaction Date is what decides which tax year the adjustment counts in, so a correction meant for last year has to carry last year's date, not today's.
The adjustment reaches pay through the next run, not through this screen. A period already run and posted is not changed by an adjustment raised afterwards.
Every field, in plain words
Basic Data
| Field | What it means | What to put in it | Notes |
|---|---|---|---|
| Transaction | The adjustment number | PYTA-000042 | Required. It numbers itself |
| Transaction Date | The date the adjustment belongs to | 31 Oct 2025 | Required. It decides which tax year the adjustment counts in and which run picks it up. It cannot be earlier than the start of his first recurring salary record |
| Financial Year | The tax year it is being raised for | FY2025-26 | Required. Pick it from the list of financial years |
| Employee | Whose tax record it goes on | Nadia Qureshi | Required. Pick her from the list |
| Tax Adjustment Type | What kind of adjustment this is | TO | Required. One of three values, listed below |
TOTax Opening - income and tax brought in from before the man's payroll started here. At least one of the two amounts must be more than zero.TATax Adjustment - a correction. The tax amount cannot be zero, and it may be negative.TRTax Rebate - an amount set against his tax. It must be more than zero.
Details
| Field | What it means | What to put in it | Notes |
|---|---|---|---|
| Tax Amount (LCY) | The tax being brought in, corrected or rebated | 96,000.00 | A positive amount means more tax has been accounted for, so less is collected over the rest of the year. On a Tax Adjustment a negative amount collects more |
| Income | The taxable income being brought in | 1,120,000.00 | Mostly used on a Tax Opening. It raises the year's projected income, so it can move the man into a higher band. Leave it at zero on a correction that is only about the tax |
| Notes | Why the adjustment was raised | Tax deducted by previous employer Jul to Sep 2025, certificate on file | Optional, and write it anyway. A tax adjustment with no explanation is the hardest thing in payroll to reconstruct a year later |
How to configure it
- Have the evidence in front of you: the man's tax certificate from his previous employer, or the working that shows what was deducted wrongly.
- Open the screen and set the Transaction Date to the date the adjustment belongs to, inside the tax year it belongs to.
- Pick the Financial Year and the employee.
- Pick the Tax Adjustment Type. Use Tax Opening only for what a man brings with him, never for a correction.
- Enter the amounts the type requires. A Tax Opening normally carries both the income and the tax. A correction or a rebate normally carries only the tax amount.
- Write the reason in Notes with the reference of the certificate or the working.
- Save, then run the next payroll and check that man's tax line before releasing the payslips.
Scenarios
A man joins in October from another company
Raise a Tax Opening dated inside the current tax year with the income he earned there and the tax deducted from it, taken off his tax certificate. Without it the next run projects him as though he had earned nothing yet this year, puts him in too low a band and under-deducts him all the way to the end of the year, at which point somebody has to take a very large deduction from one payslip.
We went live in the middle of a tax year
One Tax Opening per employee, carrying the year to date income and tax from the system the client used before. This is a go live task, it is not optional, and it is the commonest single cause of a client's first full tax year coming out wrong.
A wage type was not marked taxable and should have been
Correct the wage type first, so that the next run is right. Then work out what was under-deducted over the periods already run and raise one Tax Adjustment for that amount, so it is collected over the periods that are left. Do not re-run the closed periods.
We over-deducted a man by twelve thousand
Raise a Tax Adjustment for a negative tax amount of that figure, so that less is collected from him over the rest of the year. If he has to have the money back now rather than over the remaining months, pay it as a Debit line on Employee Additional Payment Or Deduction and say so in Notes on both documents.
A man is leaving and his tax for the year is not settled
Final Settlement does not calculate tax and has no tax component. Work the position out by hand, raise the adjustment for the record, and put the amount on the settlement as a line, payable or recovery as the case may be, with the adjustment number as the reference.
What it is connected to
- Writes to the same tax record for the year that every Payroll run writes to, and that the next run reads as income already earned and tax already accounted for.
- Its lines appear on Employee Tax Payment, carrying the adjustment type, so a deposit can be recorded against them.
- The bands and the rounding come from the Payroll Tax Slab, and the tax year from the tax calendar on the man's policy profile.
- Editing an adjustment replaces its line on the tax record, and deleting it removes the line.
If something looks wrong
- "It says we cannot create a tax adjustment before a date" - the adjustment is dated before the start of the man's first recurring salary record. Date it inside the period he has a salary structure for.
- "It says the tax amount cannot be zero" - a correction needs a non-zero amount and a rebate needs a positive one. A Tax Opening needs at least one of the income and the tax to be more than zero.
- "We raised the adjustment and the payslip did not change" - that period was already run. An adjustment is taken into account by the next run.
- "It made no difference at all" - check the Transaction Date. An adjustment dated outside the tax year the run is projecting is not counted.
- "The adjustment moved him into a higher band" - that is the Income figure doing its job. If you only meant to correct the tax, leave Income at zero.