What is a week 53 payment, and how does it affect umbrella employees?
In the 2023/24 tax year, February has an extra day due to 2024 being a leap year. This additional day means there are two days in week 53 this year. Our latest article explains a week 53 payment and how it affects umbrella employees.
What is a week 53 payment?
A tax year is not always made up of an exact number of weeks, and in specific years, some weekly paid employees may be paid 53 times rather than 52 times, depending on the day of the week you are paid. In the 2023/24 tax year (which runs from the 6th of April 2023 to the 5th of April 2024), February has an extra day due to 2024 being a leap year. As a result, there are 53 Thursdays (Thursday, the 4th of April 2024) and 53 Fridays (the 5th of April 2024). Therefore, employees paid weekly on a Thursday or Friday will receive 53 payments that year. Week 53 can also affect fortnightly, and employees paid every four weeks in some years as they may receive 27 payments instead of the usual 26 (fortnightly) or 14 payments instead of the normal 13 (paid every four weeks).
There are only 52 Saturdays, Sundays, Mondays, Tuesdays and Wednesdays in the 2023/24 tax year, so employees paid on these days will receive the standard 52 payments. Monthly payrolls are also never affected by week 53, as there are only ever 12 pay periods.
How does this affect umbrella employees’ pay?
Week 53 will affect the tax you pay because you will have already used up your tax-free personal allowance by week 52. The personal allowance is the tax-free threshold, which states how much you can earn before PAYE tax is deducted – the personal allowance is £12,570 for the 2023/24 tax year. The personal allowance is divided by the regular pay periods in a year. For example, a contractor paid weekly will receive 1/52 of their personal allowance every weekly payday. As the annual allowance has already been used, by week 53, an employee is not entitled to any more tax-free pay in that tax year.
To protect an employee’s take-home pay, umbrella companies may allocate an extra amount of tax-free pay to week 53 when calculating the tax due for the pay period. Because an additional amount of tax-free pay has been allocated in one year, HMRC will offset this by adjusting your tax code by reducing the amount of tax-free pay you will receive in the following year. In this instance, HMRC will contact the employee and the employer to advise them of the tax code change.
However, if you are not allocated an extra amount of tax-free pay for week 53, you will see a larger tax payment on your payslip for that week. This is because your income has been processed on a Week 1, Month 1 basis. This ignores previous pay and calculates your tax only on what you have been paid in the current pay period, not the whole year. As a result, you may overpay or underpay tax. HMRC will contact you if this is the case and either change the tax code for the following year or issue a refund if there has been an overpayment.
If your earnings are below the annual tax threshold by week 53, no additional tax-free pay is allocated to week 53, as the tax-free pay for the year has yet to be used.
National Insurance is calculated as usual, using the weekly, fortnightly or four-weekly thresholds as appropriate.
How to claim back overpaid tax
If you’ve overpaid or underpaid tax by the end of the tax year (the 5th of April), HMRC will send you either:
- A tax calculation letter (also known as a P800)
- A Simple Assessment letter
This will tell you how to get a refund or pay the tax you owe.
If you think you have overpaid tax but have not received a P800, contact HMRC on 0300 200 3300. Please make sure you have your tax code on hand. You may be due a tax rebate once your umbrella company has issued the tax year-end to HMRC.
Churchill Knight Umbrella
With over 25 years of experience providing contractors with compliant payroll services, we make it our priority to communicate important information and changes to all our clients. If you have any questions, please contact our Umbrella Team; they will be happy to help.
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