How to Prepare for Advanced Payroll this Christmas

Miracle Dynamics, November 29th 2018

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:


  • For employees with a cumulative tax code, calculate and record the tax due using the free pay for the last pay period in which they received no pay.

  • For employees with a ‘Week 1’ or ‘Month 1’ tax code, divide the holiday pay equally between each full week of their holiday and work out the PAYE tax separately for each week. Report the payment on the date you make it.


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:


  • Split the payment and work out National Insurance contributions due separately on the earnings for each pay period.
  • If your employees are weekly paid, you can work out the National Insurance contributions on the whole sum based on the number of weeks it represents.


There are other, less common situations relating to this in which the tax and National Insurance implications will be different, including:


  • Employees leaving or retiring straight after the festive period
  • Holiday pay set aside during the year
  • Holiday credit schemes
  • Holiday pay funds


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.



To understand how Miracle can benefit your organisation please email or alternatively call our office on 0161 939 0111

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