When you process a week 53 at payroll year end, there's nothing that you need to do differently.

Processing a week 53 gives employees extra tax free pay for the tax year. HMRC normally claims back the next tax year using form P800.

Find out more below, including how tax and NI calculate in a week 53 pay run.

Tax

In line with HMRC requirements, your software calculates tax using a week 1 / month 1 free pay allowance in week 53. This ignores previous pay and tax and calculates on a non-cumulative basis. This means that the tax calculation doesn't use employee's year to date figures.

You don't need to amend the employee's tax code. Sage 50 Payroll automatically applies HMRC's rules and calculates tax correctly at week 53.

TIP: Employees' tax only calculates on a week 1/month 1 basis if they earn above their annual free pay allowance by the end of week 52. If they don't earn over the annual free pay allowance threshold in week 53, there's no tax to deduct.

Form P800

A P800 is a notice of under or overpaid tax in the year. The reason week 53 often generates a P800 notice is due to the additional tax free allowance that the employee received in week 53 calculations.

Employees receive a tax-free allowance for the tax year based on their tax code, divided over 52 weeks. This means the employees receive all of their allowance once you process week 52. When you process week 53, the week 1 month 1 calculation means they've received 53 weeks of tax allowance. 

HMRC then recalculate 53 weeks of earnings against 52 weeks of annual allowance. HMRC normally claims this back through a tax code adjustment in the new tax year, notified on form P800. Alternatively, the employee can settle this balance directly with HMRC.

 NOTE: Visit HMRC's employee guidance at Gov.uk to find out more about form P800.

National insurance

NI calculates as in any other pay period for employees, using the weekly, two weekly or four weekly thresholds, as appropriate.

For directors with NI calculated on the Pro-rata basis, their NI recalculates in week 52 cumulatively using the annual thresholds. It then calculates cumulatively again in week 53 still using the annual thresholds.

For directors that use the Annual basis, their NI for week 53 calculates cumulatively as in any other pay period.