The tax year ends on 5 April (why the tax year ends on the 5 April is a blog in itself) meaning that any pay day failing on or before that date must be reported to HMRC, hence an additional, week 53 submission to HMRC.
53 weeks is more common than you may think
53 weeks in a tax year are not unusual and come around as frequently as leap years. Indeed the current 2018/2019 tax year is a 53 week PAYE tax year. However they can and do present problems for the processing of weekly payrolls and care is needed to ensure that the correct amounts of tax and National Insurance Contributions are calculated and paid over to HMRC.
So what is the impact?
Payroll software is built and designed to facilitate a 53 week PAYE year, however what does that mean for employers and employees?
The PAYE tax code, providing for personal allowances as dictated by Parliament, for weekly paid employees is divided into 52 equal amounts. All well and good for a 52 week tax year. However what about tax and National Insurance Contributions in week 53?
For NIC’s this is easy. NIC’s are not cumulative. Employees NIC is calculated on a weekly basis on the Gross Pay on that week.
For the most part, Income tax PAYE is calculated on a cumulative basis over the normal 52 weeks. HMRC deem that in week 53 all previous pay and tax calculations are to be ignored, income tax is calculated using a week 1 allowance.
What does this mean I hear you cry?
The software will allow a further week of free pay. The standard personal allowance for 2018/2019 is £11850. This equates to £227.88. However this does cause a problem to HMRC, even though we are following their guidance, the employee may underpay income tax.
Employees will be notified by HMRC on form P800, the underpayment will ordinarily be recovered by HMRC by amending the PAYE code number in the following tax year.
This is all very normal for a 53 week tax year and should not cause any alarm for employers or employees.
For more information contact me on 03331 123456