Paycircle provides the pay element, Notional Payment (Exempt from 50% Tax Cap), which allows you to calculate tax on notional payments without triggering the 50% tax cap.
Normally, the amount of tax that can be deducted in a pay period is capped at 50% of an employee's cash pay. Standard notional payments are excluded from this limit because they don't represent cash earnings. This pay element enables tax to be calculated on the notional payment without including the payment in the 50% tax cap calculation.
For example, if you are operating net withholding for equity awards, such as RSUs, restricted shares, or share options, enter the value of the shares under this pay element to calculate the employee's tax liability. The appropriate number of shares can then be withheld to satisfy the tax due, rather than requiring the employee to make a cash payment. Any adjustments required to offset the tax calculated must be entered manually.
How the tax cap is affected
When this element is used in a period, the employee's tax is capped at:
50% of their cash pay, plus
100% of the value of any Notional Payment (exempt from 50% tax cap) elements in that period.
Example
An employee receives the following payments in a period:
Payment | Amount |
Salary | £2,800.00 |
Unpaid leave | -£195.00 |
Car benefit in kind | £230.00 |
Notional payment | £1,000.00 |
If the notional payment is processed using the standard Notional Payment element, tax is capped at £1,302.50 — 50% of (£2,800.00 salary − £195.00 unpaid leave).
If the notional payment is processed using the new Notional Payment (exempt from 50% tax cap) element, tax is capped at £2,302.50 — 50% of (£2,800.00 salary − £195.00 unpaid leave) + 100% of the £1,000.00 notional payment.
📌Note: Benefits in kind (BIKs) are always excluded from the tax cap calculation.
Adding the element to a pay run
Before you can use the new element in a pay run, it needs to be available in the company's pay element pack.
Click Bureau settings area, then click Pay elements.
Click the Element packs tab, then choose the relevant pack.
Expand the Other additions section of elements, then select the new element.
Click Update element pack.
Once the element is in the company's pay element pack, you can use it as you normally would to add a change to an employee.
Duplicating the element
If you duplicate Notional Payment (exempt from 50% tax cap) to create your own version, the duplicate will retain the same tax treatment — including the 50% cap exemption.
On the payslip
The element will appear on payslips with the same notional indicators as the standard Notional Payment element, so employees see it presented consistently.
This includes the;
Notional/Benefit in Kind asterisk and label on PDF payslips.
This payment is notional icon and tooltip on online payslips.
Journals
To allocate the new pay element to your nominal codes:
From your company, click the Settings tab, then within the Reports & journals section, click Journals.
Select Notional Payment (exempt from 50% tax cap) from the Additions tab, then click Add elements against the nominal code you wish to add it to.
The existing Notional Payment Payable item from the Calculated tab may already be allocated and will include the value of the new pay element alongside standard notional payments.
Reporting
In the custom pay element reporter, a new column is available labelled Element Is Exempt From 50% Tax Cap.
This element will appear on the report with a Y in both the existing Element Is Notional column and the new Element Is Exempt From 50% Tax Cap column.