Before you start There are some situations where using advance pay isn't suitable. Check whether the following affect you before continuing: - You're processing statutory payments
You can't advance statutory payments, such as sick pay and parental pay. If any of your employees are receiving statutory payments, process these employees for each pay period instead of advancing. This ensures their tax and NI are accurate. - Your pension provider requires a contribution file for every
Some pension providers don't accept a single file that covers advanced periods. In this case, you need to process each period separately rather than advancing pay. - You process a salary sacrifice pension scheme
We recommend that you process each pay period separately when processing a salary sacrifice scheme. This is to ensure your salary sacrifice setup calculates correctly. - The employee receives benefits
Usually, you process benefits each period. If you advance pay, it can cause difficulty in processing the correct deduction.
Week 53 If you have a week 53 this year, you can still process advance pay. Your software automatically calculates week 53 tax and NI as HMRC require, and adds this to the calculations for the advance that you process. If you'd like to find out more about week 53, visit our how to identify and process week 53 guide.
Tax calculation Your software calculates tax on the employee's pay, using their week 52 free pay allowance. This usually causes the tax deduction to be higher than normal. When you process the employee's first payment in the new year, the tax deduction is lower than usual. This is because they have the full tax allowance up to the week they're being paid.▼ View an example. For example, if you advance two weeks holiday pay in week 52, the employee's tax is higher than usual. Then, when you pay them again in week three in the new tax year, the employee receives only one week's pay but gets three weeks' free pay allowance. This makes their tax lower than normal in week three. This ensures that the employee pays the correct amount of tax. Example calculation - Gross pay to date up to and including week 51 = £22,950.00
- Tax paid to date up to and including week 51 = £2,032.40
- On 1 April you pay the employee a normal salary of £450.00. You also pay them two weeks' holiday pay of £900.00
- The employee's tax code is 1257L
The following calculations use HMRC's Pay Adjustment Tables - Tables A and Taxable Pay Tables Manual Method - Tables B to D. - Total gross pay for tax to date = £22,950.00 + £450.00 + £900.00 = £24,300.00
- Pay adjustment (tax free pay) for week 52 = £12,579.84
- Taxable pay to date = £24,300.00 - £12,579.84 = £11,720.16
- Tax due to date on £11,720.16 from Table B = £2,344.00
Tax due this period = £2344.00 - £2032.40 = £311.60
NI calculation NI calculates for each individual pay period you advance, using the thresholds for the current tax year. The total is then due in the period you processed the advance. ▼ View an example. The following calculation uses an employee on NI category A, paid £450 per week. - Employee NI on £450.00 at week 52 = £24.96
- Employer NI on £450.00 at week 52 = £37.95
- Employee NI on £900.00 (advance for two periods) = £49.92
- Employer NI on £900.00 (advance for two periods) = £75.90
Total employee NI contributions = £74.88 Total employer NI contributions = £113.85
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TIP: Before you process advance pay over payroll year end, it's important to take a backup of your data. If you need to correct a mistake, you must restore a backup rather than use the Rollback option.