Fun Fact
Ever wondered why our tax year starts on the 6th April?
The tax year structure dates back to the switch from the Julian to the Gregorian calendar in 1752. The adjustment required a correction of 11 days to remove a historical discrepancy between the 2 calendars that had developed over the centuries. This was done by 11 days being omitted in September 1752. Under the Julian calendar, the year started on 25th March, but as a result of the correction this changed to 6th April. So now you know!
Understanding how the UK tax months work is crucial for managing payroll effectively. As an employer, you might wonder how a payroll date, such as Friday 4th May, fits into the April tax month. Read on for a clear explanation to help you navigate this aspect of payroll management.
UK Tax Month Structure
The UK tax year is divided into 12 tax months, each starting on the 6th of one calendar month and ending on the 5th of the next.
Here’s how the tax months break down:
• April Tax Month: 6th April – 5th May
• May Tax Month: 6th May – 5th June
• June Tax Month: 6th June – 5th July
• And so on…
Inclusion of Payroll on Friday 4th May in April Tax Month
Given the structure of the tax months, any payroll that falls within the period from 6th April to 5th May is included in the April tax month. Therefore, if your weekly payroll date is on Friday 4th May, it falls within the April tax month.
It’s important to note that the pay date is the driver in determining the tax month rather than the week the hours have been worked as these may differ.
It’s very common for a weekly, fortnightly or 4-weekly payroll to run a week or a few days in arrears, particularly when the payments are variable. This allows time for hours worked, to be collated and sent to payroll. If we look at the example of Friday 4th May being the pay date, it is likely that the hours for that pay date are taken to the previous Friday to include hours worked during the relevant pay frequency (weekly, fortnightly, 4-weekly). So for a weekly payroll, hours worked could be 21-27 April with a pay date of 4th May. Where an employee starts on the 21st April they will receive their first pay 14 days later. Equally, where an employee leaves on the 27th April their final pay is the 4th May rather than 27th April. This is known as “a week in arrears”, “a week in lieu” or some industries call this a “lie week”.
Weekly payrolls over the Christmas and New Year period
Employers may close their offices over the festive period, so what happens to a weekly or fortnightly payroll? Typically, we run our clients’ weekly payrolls ahead of the festive period and usually this will be for two or three separate weekly payrolls, which may be a combination of holiday hours and hours worked. The tax month may end before the employer returns back to the office. We would therefore run the two weekly payrolls, calculate the PAYE due for the tax month ending 5 January, then run a further weekly payroll for the new tax month. The exact processing depends on the dates of your payroll and how the Festive holidays fall.
Weekly payroll and pension
The Pensions Regulator (TPR) stipulates that contributions for a tax month are paid by the 19th (if by cheque) or 22nd (if paid electronically) of the month following deductions from payroll. Pension providers specify their own cut-off date by which time a record of contributions must be uploaded, in order that they can process collections to meet the payment deadline. The challenge arises where the record of pension contributions must be uploaded by the 3rd of a month but pay date isn’t until 4th or 5th. Or, where the cut off is shortly after pay date and requires a swift turnaround.
The One Accounting payroll team are used to dealing with this type of scenario. Usually it all settles into a slick routine once we’ve run the payroll for a couple of weeks. As part of our on boarding we make new clients aware of the cut offs, as they may have been used to a different cut off in the past.
Conclusion
Understanding how payroll cycles fall into the tax month is crucial for accurate payroll management and compliance with HMRC regulations. By recognising the structure of tax months and aligning your payroll processes accordingly, you can ensure smooth operations and avoid any potential issues with tax reporting.
For additional support, please give us a call and we’ll put you in touch with our payroll team who can provide tailored advice and help you navigate the complexities of payroll management, ensuring compliance and efficiency in your operations.
Telephone : 0131 220 0152
