To keep you compliant, your software automatically calculates the correct tax and national insurance (NI) contributions due on pay advanced over the year end.

TIP: Before you 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.

There are some situations when you shouldn't advance pay. Check your advance isn't impacted by the following before you continue:

• 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, you must update these particular employees for each pay period. This ensures their tax and NI calculate correctly.

• Your pension provider requires a contribution file for every period

  If your pension provider doesn't accept a single file that covers the full advanced period, you need to process each period separately rather than advancing pay.

• You process a salary sacrifice pension scheme
  We recommend that you pay each pay period separately when processing a salary sacrifice scheme. This is to ensure your salary sacrifice set up calculates correctly.
• The employee receives benefits
  Many benefits are calculated period by period, so if can cause confusion if they're calculated and paid using the Advance Pay option.

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.

Calculation of tax

The tax on all of the employee's pay, including the pay you advance, is calculated using the week 52 free pay allowance. This means the tax deduction may be higher than normal. However, when you process the employee's first payment in the new year, the tax deduction is lower than usual as they have the full tax allowance up to the week they're being paid.

Example

For example, if you advance two weeks holiday pay in week 52, more tax is deducted than usual. When you pay them again in week 3 in the new tax year, the employee receives only one week's pay but gets three weeks' free pay allowance, making the tax lower than normal.

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

Calculation of NI

NI is calculated for each individual pay period advanced, using the thresholds for the current tax year.

Example calculation

The following calculation uses an employee on NI category A, paid £450 per week.

• Employee NI on £450.00 for week 52 calculated in Sage 50 Payroll = £24.96
• Employer NI on £450.00 for week 52 calculated in Sage 50 Payroll = £37.95

• Employee NI on £900.00 advanced for 2 periods = 2 x NI due on £450.00 = 2 x £24.96 = £49.92
• Employer NI on £900.00 advanced for 2 periods = 2 x NI due on £450.00 = 2 x £37.95 = £75.90

Total employee NI contributions = £74.88

Total employer NI contributions = £113.85