As Christmas approaches, a high number of employers across the UK will be preparing for advanced payroll over the holiday period. Many organisations who have weekly payroll will cease operations over Christmas, with employees expected to use up their annual leave entitlement across the holiday season.
Due to this, employees’ holiday pay will need to be settled in advance, with PAYE tax and National Insurance contributions (NICs) calculated in a different way.
How tax is worked out for advanced payroll
When an employer processes their Christmas holiday pay in advance, employees should receive two weeks’ pay followed by one week of no payment. In this situation, PAYE tax is accounted in the following way:
How NICs are Worked Out for Advanced Payroll
There are two methods for working out the National Insurance contributions for the purposes of holiday pay paid in advance:
There are other, less common situations relating to this in which the tax and National Insurance implications will be different, including:
For full details on how to work out the tax and National Insurance contributions in these cases, see the government guidance page.
MiraclePay and Preparing Advanced Payroll
MiraclePay is a fully integrated HMRC-recognised payroll solution, designed to increase productivity, reduce your workload and improve accuracy. Based on Microsoft Dynamics NAV, giving users a familiar Microsoft look and feel, this powerful software enables you to manage all the intricacies of advance payroll with ease.
As well as facilitating the smooth running of the payroll function in organisations of any size, MiraclePay helps you manage the pay, tax and National Insurance contributions for more than one payroll period over the upcoming festive break, or at any other time of the year. Make sure holiday pay is calculated and processed correctly in your company with the world’s leading payroll solution.