Contractors who are paid weekly, bi-weekly or every four weeks and whose final payday for the 2018/19 tax year falls on the 5th April 2019 may be affected by the week 53 payment.
What is week 53?
Your annual tax-free allowance is split into 52 equal amounts because a year normally has 52 weekly paydays. In reality, a year actually has 52 full weeks plus an extra day (or two if it’s a leap year). However, every four years it works out that there are 53 paydays in the same tax year due to the way the weekdays fall, or because of a leap year.
As the 2018/19 tax year runs from the 6th April 2018 to 5th April 2019 it works out as having 53 Fridays in this tax year. Therefore, contractors paid weekly on a Friday will actually receive 53 payments this year. Week 53 may also affect contractors who are paid bi-weekly and every four weeks in certain years as they may receive 27 payments instead of the normal 26 (bi-weekly), or 14 payments instead of the normal 13 (paid every four weeks).
How does it affect the amount of tax I pay?
The Personal Allowance is the tax-free threshold which states how much you can earn before PAYE tax is deducted (£11,850 for the 2018/19 tax year). The Personal Allowance is divided by the usual pay periods in a year – a contractor being paid weekly will receive 1/52 of their Personal Allowance every weekly payday.
Week 53 will affect the amount of tax you pay because you will already have used up your Personal Allowance by week 52. As you have no more tax-free entitlement left for that year it means your tax will be calculated on all of your earnings and will result in a lower take home pay than normal.
What can your umbrella company do about week 53 payments?
HMRC rules stipulate that to protect the take home pay of an employee an extra amount of tax-free pay can be allocated to week 53. However, as the Personal Allowance for that year will have already been used (by week 52) it will mean that the employee’s overall tax-free pay for that year is higher than it should be. Unfortunately, because additional tax-free pay has been allocated for that year it must be offset by reducing the amount of tax-free pay that is allocated for the following year – and HMRC will adjust the tax code accordingly.
However, if you are not allocated additional tax-free pay for week 53 you will see a larger tax payment on your payslip for that week. Compliant umbrella companies will always calculate your pay and tax deductions in accordance with HMRC regulations and unfortunately, there is nothing that can be done to avoid this extra tax payment.
If this does happen to you, you are able to pursue a tax rebate for the additional tax that has been deducted – after the end of the tax year – and it will not affect your tax code for the following tax year.
How do I claim back the tax?
Contractors who have received larger tax deductions should contact HMRC on 0300 200 3300 with their tax code on hand. Please note that you will only be able to pursue a tax rebate once your umbrella company has issued the tax year-end to HMRC.
Churchill Knight Umbrella will support you and your payroll every step of the way
With over 20 years’ experience providing contractors with HMRC compliant payroll services (accountancy and umbrella) – you can count on our expert team to support you through your contract work by offering you a simple, hassle-free way to get paid.
If you would like some impartial advice about our umbrella service please give our team a call on 01707 871622 or request a callback.