Holiday Payroll Prep: Essential Tips for a Smooth Festive Season

One of the significant differences between the United Kingdom and many other nations is that the traditional New Year’s Day for tax retains the original Julian calendar alignment with what was 25th March. Through alignments in 1752 with the Gregorian calendar along with the movement of the celebrated New Year’s Day to 1st January, and some movements of leap year differences in 1800, have resulted in the present UK tax year start of 6th April annually for tax law.

Fortunately, this means that for UK payroll professionals, Christmas is not also impacted by a 1st January new tax year. However, there are other implications for payroll professionals to consider during this and other festive seasons.

Some employers still make cash additions to their employees for Christmas, these count as employment income and are added to the normal employee income and are added to the normal employee earnings for tax and Class 1 National Insurance purposes using standard payroll processing cycles.

An employer may provide employees with a seasonal gift, such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas. All of these gifts can be treated as trivial benefits.

For an employer with many employees, the total cost of providing a gift to each employee may be considerable, but where the gift to each employee is a trivial benefit, this principle applies regardless of the total cost to the employer and the number of employees concerned. If a benefit is trivial, it should not be included in a PAYE Settlement Agreement.

Seasonal flu immunisations. Where an employer provides employees with immunisations against seasonal flu (“flu jabs”), this is treated as trivial.

You might not have to report anything to HM Revenue and Customs (HMRC) or pay tax and National Insurance. To be exempt, the party or similar social function must:

• be open to all your employees
   
• be annual, such as a Christmas party or summer barbecue
   
• cost £150 or less per person (which can include other guests such as a partner or family member within the count). During the COVID period of lockdown, it was confirmed that events can be virtual parties and this remains the case.

If an employer pays their Christmas season holiday pay in advance, so instead of the usual one week’s pay, the employee receives two weeks followed by a week with no payment, then the payroll operation of PAYE is accounted in the following way:

• For employees with cumulative tax code, calculate and record PAYE using the free for the last week in which no pay is received.
• For an employee with a week 1 / month 1 tax code, divide their holiday pay for each of the weeks and work out the PAYE separately.

In both of these cases the tax period is advanced to reflect two weeks payment and the FPS reports that the number of periods covered is two for two weeks.

For weekly payroll only (not two weekly, fortnightly, four weekly, lunar or monthly multiples) there are special NIC procedures to follow using either of two methods:

• Method A – Split the payment for each week and work out the NIC due on each individual week. This is only permitted for weekly payrolls.
• Method B – Work out NIC on the whole sum based on the number of periods being used. This method can be used for any pay frequency.

For the second year running, Christmas Day and there are no substitute days.

So, when are the Christmas and New Year Bank holidays?

For England Wales and Northern Ireland matches:

And for Scotland:

 

Bank or public holidays are not a right for either leave or pay. However, an employer can choose to contractually include bank holidays as part of a worker’s statutory annual leave minimum of 5.6 paid weeks (capped at 28 days annually based on a 5 or more day week).

Some may contractually provide public holiday pay entitlements in addition to the statutory minimum. The employment contract, along with holiday scheme terms and conditions, may state which days are specifically included such as Christmas Day and New Year’s and other days that are excluded. For some years where Christmas and other seasonal days fall on non-working days, the government may allocate alternate days as public holidays. Christmas Day 2024 and New Year’s Day 2025 both fall on a Wednesday.

Employers may need to decide what policies they implement and communicate with their employees and workers about paid bank holidays and the Christmas and New Year holiday season.

As part of the October 2024 HMRC employer bulletin, there is a reminder for employers that where the pay date is brought forward for early Christmas season payments, that the normal or regular payment date is reported on the Real Time Information Full Payment Submission and not the actual payment date. For example: if you pay on 20th December but your normal payment date is 31st December, they instruct that the payment date reported is 31st December and that the FPS submission is sent on or before 31st December.

Doing this helps protect the employees’ eligibility for income-based benefits such as Universal Credit, as an early payment could affect current and future entitlements causing Universal Credit Christmas shock that employers will want to avoid for their employees.

 

Article taken from the 04:05 Global Payroll Magazine. Read the full publication here: 04:05 Issue 6

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