Overview
We have enhanced the expat tax-exempt percentage feature to correctly calculate tax exemptions cumulatively across pay periods.
What's changed
Previous Behaviour
The expat tax exempt percentage was not being calculated cumulatively, which meant:
The exemption was only applied correctly in the first period.
Subsequent periods did not correctly account for cumulative taxable pay and tax-exempt amounts.
Year-to-date figures were not accurately maintained.
New Behaviour
The enhanced functionality now:
Applies the tax-exempt percentage to each period's taxable gross pay
Calculates tax correctly using cumulative year-to-date figures
Automatically maintains separate cumulative records of taxable pay and exempt pay
Ensures accurate tax calculations throughout the entire tax year
How It Works
When you process payroll with the expat tax-exempt feature enabled:
The system applies the exempt percentage to the current period's gross pay.
It calculates the current period's taxable pay (gross pay minus exempt amount).
It combines the current period taxable pay with the year-to-date taxable pay.
Tax is calculated based on cumulative figures, using the employee's tax code.
Year-to-date values are automatically updated for the next period.
📌Note: Non-cumulative tax codes (Week 1/Month 1 basis) will not use year-to-date figures in the calculation.
Mid-Year Percentage Changes
If you need to change the tax-exempt percentage during the tax year:
The new percentage will be applied from the period in which it is changed.
It will not be backdated to earlier periods.
If backdating is required, you will need to manually adjust the year-to-date taxable pay figure.
Action Required
If your data was affected in 2025/26, the exempt percentage was above 0%.
If you have been using a tax-exempt percentage greater than 0% during the 2025/26 tax year, you may need to make amendments before processing the final pay period to ensure accurate year-end figures.
Required adjustments:
Adjust the employee's YTD gross pay to include only non-tax-exempt pay.
Add the tax-exempt pay in the separate 'Exempt pay to date' field (optional).
Leave the YTD tax figure as it is (this correctly represents tax paid).
Alternative: If you prefer not to adjust figures now, you can send a previous year FPS from 20th April 2026 onward to correct payments for the 2025/26 tax year.
For detailed guidance on corrections, please refer to the communication sent to affected customers.
If you have not been using the tax-exempt percentage during 2025/26 (or have been using 0%), no action is required for the current tax year.
Functionality from April 2026
To use the enhanced functionality from the new tax year:
From the first period in April 2026, enable the 'Exempt from tax' flag on the relevant employee record.
Enter the appropriate percentage of pay that is tax-exempt.
Process pay from Period 1 in April 2026.
Paycircle will automatically calculate each period correctly throughout the year.
Technical Details
Employee Fields Affected
Total YTD Gross Pay:- Represents all gross pay.
Total YTD Gross Pay for Tax:- Should contain only taxable (non-exempt) pay.
Total Tax Paid:- Represents actual tax deducted.
Exempt Pay to Date:- Separate field for cumulative tax-exempt pay.
A Percentage of Pay is Exempt:- Flag to identify that tax exemption applies.
Tax Exempt Percentage:- The percentage of pay that is tax exempt.
Previous Tax Years
No changes should be applied to previous tax years (2024/25 and earlier) in Paycircle.
For employees who claimed overseas workday relief in previous tax years:
Employees should have submitted self-assessment tax returns.
Any rebates would have been dealt with directly by HMRC.
You may wish to advise affected employees to check that they submitted correct YTD figures on their Self Assessment returns, and advise of any corrections.
A previous year FPS can be submitted from 20th April 2026 onward to correct payments for the 2025/26 tax year, if required.