‘Week 53’ tax year could mean unexpected tax bills, warns LITRG

Thousands of UK employees could face an unexpected tax bill this year due to a little-known quirk in the tax system, the Low Incomes Tax Reform Group (LITRG) has warned.

Employees who are paid on Thursday 4^th or Friday 5^th April may owe extra tax because of receiving an ‘extra’ paycheque in the 2023/24 tax year.¹

Those paid weekly will be paid 53 times rather than 52 across the year. In these circumstances, HMRC allow employers to give them more of the tax-free personal allowance than they are entitled to so that their take home pay isn’t affected. However, this means that they will underpay tax.

Those paid fortnightly and four-weekly could also be affected. The amount of extra personal allowance they will be given will be larger and will likely mean HMRC will want to claw back the larger underpaid tax as a result.

Meredith McCammond, Technical Officer for LITRG, said:

“Where employees are paid weekly, the PAYE system is designed to assume you are paid 52 times a year. Each week, you get a 1/52 proportion of your tax-free personal allowance (£242 a week).² By the end of the tax year, this means that normally you would pay the right amount of tax.

“But for years in which 53 paydays fall, as happens this year if you are paid at the end of the week on a Thursday or Friday, the system gives you an extra £242 chunk of tax-free personal allowance.

“When HMRC later work out how much tax these employees owe for the year compared to how much has been taken off their wages, it may show that not enough tax has been paid overall. For a basic rate taxpayer, the amount would be just under £50.³ As it is not significant, HMRC may choose not to collect this.⁴

“However, the amount owed could be significantly higher if you are paid fortnightly or four-weekly, with almost £100 being owed by the former and £200 by the latter. In these circumstances, it is likely HMRC will try to collect it.”⁵

LITRG has urged those who may be affected by the rule to check any tax calculation that they receive from HMRC and to make themselves aware of how any extra tax bill will have to be paid.

Meredith continued:

“Once the tax year ends, HMRC will send a tax calculation setting out any amounts owed, called a P800.⁶ They will then try to collect the tax.

“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. Employees should check they agree the bill is correct, by comparing it to their own records, such as their P60.

“How the tax is collected depends on the taxpayer’s situation. If they have a continuing employment, their PAYE code might be adjusted to recoup the debt over the next tax year. We recommend that all employees check their PAYE code each year.⁷

“If you have stopped work, you might need to arrange to pay directly to HMRC.”