Week 53 payments, tax calculations and P800 letters.
Background
- Most employees (¹) are entitled to a certain amount of pay before paying tax. This is called the ‘Personal Allowance’. In 2023-24 the personal allowance was £12,570.
- When calculating PAYE tax, the Personal Allowance is divided by the usual number of pay periods in the year in order to calculate the tax free pay for that period e.g. a weekly paid employee is allocated 1/52 of their annual allowance in each weekly pay period (i.e. 12570/52 = £241.73)
- Tax is calculated after deducting the personal allowance, so by the end of week 52 the entire allowance has been ‘used up’.
(¹) employees earning above £100,000 per annum have their personal allowance reduced by £1 for every £2 of their earnings that exceed £100,000.
What is ‘Week 53’?
- Because a year is not made up of an exact number of weeks, in certain years some weekly paid employees may be paid 53 times rather than 52, depending on the day of the week that they are paid.
- In the tax year 2023-24 (which runs from 6 April 2023 to 5th April 2024) there are 53 Thursdays and 53 Fridays, so employees paid weekly on a Thursday or Friday will actually receive 53 payments in that year, rather than the usual 52. This final payment is referred to as ‘week 53’. There were only 52 Saturday/Sunday/Monday/Tuesday/Wednesdays in tax year 2023-24, so employees paid on these days will receive the ‘normal’ 52 payments, and will NOT have a week 53.
- Week 53 can also affect 2-weekly and 4-weekly paid employees in certain years as they may receive 27 (2-weekly) payments instead of the usual 26, or 14 (4-weekly) payments instead of the usual 13.
Why might this cause a problem?
- A problem occurs because the annual personal allowance has already been ‘used up’ by week 52, so employees are not actually entitled to any more tax free pay in that year. But If no tax free pay is allocated in week 53 then tax would be calculated on all of an employee’s earnings resulting in less take home pay than usual.
How does HMRC deal with week 53 payments?
- In order to protect the take home pay of an employee, HMRC rules stipulate that an extra amount of tax free pay is allocated to week 53 when calculating the tax due for that pay period, if the tax free pay for the year has already been allocated (²). This means that the employee’s overall tax free pay for that year will be greater than the annual personal allowance (See the HMRC CWG2 Guide in the ‘Links’ section at the bottom of this guide for more information about the calculation).
- Moneysoft Payroll Manager automatically applies the HMRC rule where there is a ‘week 53’ and allocates the additional tax free pay. Income tax for week 53 is calculated on a ‘Week 1 / Month 1’ basis.
(²) In circumstances where the employee earnings are below the annual tax threshold by week 53, no additional tax free pay is allocated to week 53, as the ‘tax free pay’ for the year has not yet been exhausted. Again, Payroll Manager handles this situation automatically.
How might this affect an employee in the following tax year?
- Because the employee has been given an extra amount of tax-free pay in one year then HMRC will offset this by reducing the amount of tax free pay they receive in the following year. Typically HMRC achieve this by adjusting the tax code of the employee. In such cases HMRC will contact both the employee and the employer to advise them of the tax code change.
- HMRC may issue a P800 form to any employee that owes tax following a ‘week 53’ payment, which explains how their tax has been calculated.
What should an employer do if an employee asks them why they have received a P800?
- The employer may choose to provide the employee with a printed copy of this guide to explain ‘week 53’ payments and how they are operated. It is important to emphasise that the employee’s tax has not been calculated incorrectly but rather that it has been calculated according to HMRC rules and that an extra amount of tax free pay was allocated in order to protect the take home pay of the employee in week 53. Various HMRC support documents regarding week 53 payments can be found in the The ‘Links’ section at the end of this guide.
FAQ
– I want to add a ‘week 53’, how do I do this? – It is not possible to make a week 53 appear in Payroll Manager unless it actually exists – e.g. in 2023-24 there are 53 Thursdays and 53 Fridays (the first being 6th/7th April 2023 and the 53rd being 4th/5th April 2024) – so if the weekly pay date is a Thursday or Friday employees will receive 53 payments in the tax year. In such case Payroll Manager will automatically display 53 weeks on the ‘Pay Details’ screen. There are only 52 Saturday/Sunday/Monday/Tuesday/Wednesdays in tax year 2022-23, so employees paid on these days will receive 52 payments (i.e. there is no ‘week 53’) and Payroll Manager will only display 52 weeks on the ‘Pay Details’ screen.
– Does week 53 affect monthly paid employees? – No – monthly paid employees are always paid once in each calendar month, and so will always receive 12 payments in a year.
Links
HMRC: Tax overpayments and underpayments – P800 letter