How does an underpayment arise?

Most pensioners are entitled to a certain amount of tax-free income known as the personal allowance, in 2026/27 the personal allowance is £12,570.

When calculating PAYE tax, HM Revenue & Customs (HMRC) divide the personal allowance by the usual number of pay periods in the year to calculate the tax-free pay for that period, for example a 4 weekly paid pensioner is allocated 1/13 of their annual personal allowance in each 4 weekly pay period.

A week 56 payroll causes an issue because the annual personal allowance has already been ‘used up’ by week 52, so pensioners are not actually entitled to any more tax-free pay in that year. To prevent a pensioner’s earnings resulting in less take home pay than usual, HMRC instruct us to apply the allowance therefore the employee’s overall tax-free pay for that year is greater than the annual personal allowance.