How tax and national insurance calculates at week 53

Tax

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

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: An employee's 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, then no tax is deducted.

Form P800

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

Every year an employee receives a tax free allowance based on their tax code. This is divided over 52 weeks, so at the end of the tax year the employee will have received all of their allowance. When week 53 is processed, the week 1 month 1 calculation means they've actually received 53 weeks of tax allowance. 

HMRC then recalculate 53 weeks of earnings against 52 weeks of annual allowance.  The additional week of tax due will be communicated to the employee through this P800 and is normally claimed back through a tax code adjustment. Alternatively, the employee can settle this balance directly with HMRC.

National insurance

For employees, NI is calculated as in any other pay period, 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 is calculated cumulatively as in any other pay period.