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How to solve a problem like week 53?

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Week 53 strikes again, leaving employees at risk of an unexpected tax bill. So can anything be done to put an end to this recurring payroll frustration?

10th Apr 2024
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The week 53 situation remains a source of exasperation for employers. The problem arises for weekly paid employees for years when 53 paydays fall, rather than – as the PAYE system is designed – for 52 times a year (or 54 for a fortnightly payroll, week 56 for a lunar payroll). 

Employees who were paid on either 4 or 5 April may be faced with an unexpected tax bill because they’ve received an extra paycheck in the 2023/24 tax year. 

HMRC guidance says to give extra personal allowances for the extra week (or two weeks or four weeks for those paid fortnightly or four-weekly). However, this is not written in the legislation and therefore the employee is not actually entitled to it. 

Explaining the reasoning behind this, payroll consultant Ian Holloway said: “HMRC’s guidance is all for the purposes of ‘net pay smoothing’, ensuring that the employee does not get a large tax shock in their payslip just because their employer is paying them 53 times, 54 times or 56 times in the tax year.”

Communication is key

The Low Income Tax Reform Group (LITRG) has raised concerns that taxpayers will have unknowingly underpaid tax. 

Meredith McCammond, a technical officer for LITRG said that for years in which 53 paydays fall, not enough tax may have been paid overall, and for a basic-rate taxpayer, this could be just under £50.

HMRC systems may or may not recover this via the “notice of underpayment” form, but those paid fortnightly or four-weekly might not be so lucky. 

“Employees should understand that these tax bills are not due to any error by their employer. They arise simply because of the way the system is designed,” advised McCammond.

Mathew Akrigg, a policy and research officer at the Chartered Institute of Payroll Professionals, noted that employers have a role to play in clarifying the situation for their employees before a tax calculation letter lands on their door mat. 

“With tax year end being a once-a-year occurrence it’s understandable that, when a week 53 rolls around even less frequently, there will be some issues. We know that week 53 can cause some issues for taxpayers and can result in overpaid tax. As with anything in payroll, communication is key to ensuring your employees understand what may happen as a result.”

Holloway agreed, advising employers to ensure their employees are aware and give an extra portion of allowances that the employee is not actually entitled to. “They need to put themselves in a defensive position: ‘It’s not my fault, it’s the way PAYE works’,” he said. 

What can be done? 

So what can be done about this going forward? The problem shows no signs of going away and every time it remains a source of frustration for payroll. “You would have thought that HMRC would allow the annual personal allowance to be divided by 53 where the employer knows that there are 53 paydays in a year rather than 52 (or 27 rather than 26 or 13 rather than 12),” said Holloway.  

“So, at the start of the year, payroll software could divide the personal allowance by the number of paydays in the year giving 1/53rd each payday rather than 1/52nd. However, that is not what the law says and that’s the issue,” he added. 

Holloway said that HMRC really needs to revisit its guidance and come up with a workable solution. “It needs to be one that does not put employees at risk of underpaying tax just because of the way an employer’s pay frequencies happen to fit into the tax calendar,” he said.

“It is perfectly possible for payroll software to apportion an employee’s tax allowances over a greater number of paydays, but a large part of this depends on the employer knowing at the start of the tax year that there are going to be 53 paydays (or 54 or 56). Then, of course, an employee leaving mid-year will not look as though they have received the correct tax allowances when they go to a new employment, creating further issues. 

“But, if HMRC talked to the right professional bodies and software providers, there must be a workaround – HMRC is used to operating workarounds!”  

[Editor update: The image to this article has been replaced. Previously the image was of the dictionary definition of 'Leap Year'.] 

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Replies (9)

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By Paul Crowley
10th Apr 2024 19:03

Yet another reason for monthly payments.

'The extra payment occurs because of the extra days in leap years'
That comment shows a chronic failure to understand.

Leap year has nothing to do with it. 53 week years are 5/6 years apart because a year is 365 Days and 52 weeks is only 364 days

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Replying to Paul Crowley:
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By FactChecker
10th Apr 2024 21:08

Quite ... I was puzzled by the headline, and kept waiting for the explanation that never arrived.

W53/W54/W56 has been embedded within PAYE since day one (before even my time of manual calcs and hand-written entries on gigantic P11 sheets) - but as you say has *nothing* to do with Leap Years.

The simple fact is PAYE was set up to accept a choice of pay frequencies ... Weekly, Fortnightly, 4-weekly, Monthly, Quarterly and Annual (to which were added for RTI purposes .. One-off and Irregular).
And none of the first 3 of those divides a whole number of times into a single year - hence the need for w53, w54 and w56 respectively to cover the 'extra pay day' (actually the short extra 53rd or 27th or 14th pay period respectively).

But it was always thus, and has never caused a problem for payrollers (whether manually or software processed) ... and I've never known HMRC care about the (generally miniscule) loss of tax to the extent of chasing it.

The real issue is the old one, that most ERs and nearly all EEs believe that PAYE is guaranteed to have deducted precisely the correct amount of tax by year-end - as opposed to both its intention and the reality, which is to deduct as close an approximation as possible to what turns out (at year-end) to have been correct ... and rely on adjustments via TC notices and/or SA returns to get closer still.
[With the caveat that HMRC generally don't bother for small values.]

Set vs the scale of the crazy inconsistencies between HMRC'S monthly/annual approach to tax and DWP's weekly/fortnightly/4-weekly approach to benefits and pensions ... the PAYE bit caught in the crossfire is but a minor inconvenience.

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Replying to Paul Crowley:
Morph
By kevinringer
12th Apr 2024 08:06

Leap year has something to do with it. In a non-leap year only weekly (or fortnightly) pay on 5 April will be week 53, but during a leap year, week 53 will occur on 4 and 5 April, thus doubling the number of potential week 53 paydays. To make it worse this leap year, 4 and 5 April were Thursday and Friday, which is the more usual payday for weekly paid employees.

One solution to this problem would be to reinstate the week 53 indicator that used to appear on the P60, and give those employees a week 53 Personal Allowance of 1/52 x £12,570. But thinking this through, it would also be necessary to increase the tax bands, so that could end up being rather complex.

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By mbee1
11th Apr 2024 07:53

One of the reasons I refuse to take on weekly payrolls. Far too much work and hassle for little gain.

I agree with FactChecker. I remember the days of manual calculations with a P11 Working Sheet and books of tax tables. In those days and being ex Inland Revenue, when the manual end of year procedure was done by IR staff (the old ANZT procedure) any underpayment of tax of less than £20 was within the tolerance and wasn't collected. Not sure what happens now with automation and whether there is a de minimis limit built in for non SA cases especially where the W52/53/56 signal is set.

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Routemaster image
By tom123
11th Apr 2024 08:57

I still shudder at the time (about 15 years ago now) when we had 250 weekly paid shop floor staff, with all the associated timesheet / overtime issues.

With the added nightmare of trying to do the payroll "year" end in about a day and a half

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David Ross
By davidross
11th Apr 2024 09:26

In the deep recesses of my mind, from my days in the Inland Revenue (>40 years) we took note of the Week 53-54 entry when reviewing at the end of the year. Each taxpayer had a 'concard' (control card) which lasted six years. I am sure that we did not pursue payment.

I do wonder what will happen in a Self Assessment case - presumably an underpayment will show up. It is helpful to have this warning, but curiously I cannot remember an instance since 1997!

I agree, all employers should be encouraged to pay monthly

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By GrayMan
12th Apr 2024 09:03

For my sins, I started my career in the Inland Revenue and have never known Week 53 to cause a problem. If I remember correctly, weekly pay was recorded on P9s and monthly on P11s. I believe there was an extra week on P9s and employees were taxed on a week 1 basis when this happened. Even where an assessment was subsequently necessary the tax manual told us to assess only 52/53rds of the annual income. Mind you, in those days there was earned income relief of 2/9ths and while there were surtax rates, you could speak to people on the phone or physically in the tax office on Saturday mornings or by appointment during the week.

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Replying to GrayMan:
Morph
By kevinringer
12th Apr 2024 09:21

Week 53 is a problem if the employee is also in SA because in SA they aren't given the week 53 allowances that they received in PAYE, so they end up having to pay extra tax that they wouldn't have had to pay if they were not in SA. We can't compare the digital-is-king HMRC of 2024 where tax knowledge is lacking, with the manual-records Inland Revenue of yesteryear where HMRC staff knew tax and would know the significance of week 53.

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By Not Anonymous
12th Apr 2024 20:52

I suspect most taxpayers with a week 53 payment will be paying the tax owed from now on, whether in Self Assessment or not.

A lot of employees have tax code 1257L.

By week 52 they will have received 12579 allowances and underpaid (through no one's fault) £1.80.

They will then receive an extra weeks allowances, which for code 1257L equates to £241.90. A basic rate payer would have avoided paying £48.38 (in practice probably £48.20 or £48.40) on that weeks pay.

The two combined is going to hit £50 and I think that's reaching the point where ignoring it is unlikely, especially with automation.

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