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Payroll Week 53 payment. When it’s right, it’s wrong!

Simon Parsons
Simon Parsons

In some tax years, the way pay dates fall for weekly based payrolls means that an employer ends up making one more payment than usual to employees at the end of the tax year. For weekly payroll this is known as a Week 53, for a 27th fortnightly payroll a Week 54, and for a 14th Lunar a Week 56 payment.

Just to confuse the situation further, all of these payments are officially referred to by HMRC as ‘Week 53 Payment’ and are calculated and recorded differently with regards to PAYE Income Tax.

Payroll software is built to deal with the required calculations automatically – but the operation comes with issues.

Employers will have done everything correctly by calculating PAYE in accordance with HMRC rules and applied tax correctly to the pay period, however, the employee will have paid the incorrect amount of tax!

Where an employee is on a non-cumulative tax code, they will receive an extra 1, 2 or 4 weeks of free-pay to which they are not really entitled. For employees on cumulative codes (but not K codes), where pay exceeds 52 weeks of free-pay, then again the tax this time is based on the employee receiving an extra 1, 2 or 4 weeks of free-pay.

Where a K code is in operation, then an additional non-cumulative amount of tax liability is levied, again based on 1, 2 or 4 weeks. However, the employee is likely to not owe the additional 1, 2 or 4 period amount – they have overpaid tax.

Is the amount of additional free-pay or tax right?

The answer, simply, is no. For those on standard suffix tax codes, the employee will have received between 1 and 4 weeks of free pay that they are not entitled too. Equally those with K codes will have had deducted an extra period of additional taxable gross that would not normally have been applied leading to an overpayment.

Weekly payrolls have been familiar with the issue for many years as the regularity is reasonably close together – but the amounts are not very large. However, the occurrence of Week 56 for lunar payrolls is much rarer and the impacts of the resulting P800 and tax bill are more significant – raising employee unhappiness and complaints.

The reality is that the employer has followed the HMRC PAYE requirements to the letter. The employees in many cases are left with a bill, and some attempt to pursue the employer to pay it.

How can employers avoid this?

Without a change in HMRC rule, it is unavoidable without changing pay date or frequency. The fact is PAYE does not collect the right amount of tax even when an employer follows the tax calculation.

Any underpaid tax is normally added to the employee tax code for the new tax year to enable the employee to pay it back in equal installments. For example, an underpayment from the 2013-2014 tax year is paid back in the 2015-2016 tax year! However, if the P800 issued to the employee does not state that the underpayment will be including in the tax code, then the employee has a bill to pay.

HMRC advise employees to check the P60 for the Week 53 indicator box before making contact with them.

  • 12th August 2013
  • Payroll
  • 7 Comments

7 Comments

1

SIMON WELLS

Interesting article. I work for Asda and apparently Ceridian works out my PAYE, so its interesting to read you followed HMRC guidance and yet tens of thousands of Asda colleagues underpaid last year.

Why didn’t you just pay our bonus in that months wage slip rather than issuing a different one? surely that would have fixed the issue as there would have been only 13 pay days then?

2

P Simon Parsons

Hi Simon

Monthly payrolls only have to 12 pay days per annum.

The challenge for you is the legal operation of 4 weekly payrolls and where a 14th payment falls (this happens around every 20 years) on the 5th April (plus 4th for leap years).  This does not relate to bonus but to the 4 weekly payroll pattern.

Tax overall is judged with a citizen on annual allowances and bandings basis, PAYE is not but does an element of estimated assessment. So there can often be instances where citizens have under or overpaid tax yet the employer has correctly operated PAYE in accordance with the legal requirements.

3

simon wells

So are you saying if my employer had taken one fourteenth of my tax allowance every pay packet instead of one thirteenth I would have paid the correct amount of tax?

I think this week 53 guidance by HMRC is massively flawed and needs sorting out. We don’t live in the middle ages any more.

Only this Wednesday in the daily mail was a story about some 60,000 miners who’s pensions are paid 4 weekly who surprisingly owe the same amount as most Asda employees.

4

P Simon Parsons

Hi Simon

Not queit as PAYE is only a guestimate - but it would have been much closer to the annual liabilities. However, HMRC tend to ignore small differences.

However, taxation law does not allow your employer to divide the annual allowance by 14, it requires the use of 13 period in all cases and for the 14th payment requires the use of 4 weeks allowances. There is also a 4 week National Insurance Contribution.

So we then see the contradition - When it’s right; it’s wrong!

5

Simon wells

Indeed. I have raised a freedom of information request with hmrc, requesting how many people are affected in the last tax year, in an attempt to highlight the contradiction that the week 53 rules present.

6

Gregg

My sister in law works for ASDA and has rec’d a bill for £150 from HMRC. Why is she having to pay it? Shouldn’t it be ASDA who pay? This is down to the 20 year rule.

7

P Simon Parsons

Simply becuase PAYE is a citizen liability and not an employer liability. In this instance ASDA have calculated the PAYE as required by HMRC. However, as individual we all have an annual allowance and at the end of year HMRC reconcile the annual position. So the underpayment is owed by the citizen.

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