Tax Update
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Published 16 Oct 2024 in Colleagues
Following on from the “How the 2024 pay periods may affect the tax you pay” communication issued in March and September, we’d like to remind you of a pay anomaly that will have affected some colleagues.
In certain years, colleagues who are paid on a 4-weekly basis, may be paid 14 times in a tax year instead of 13. In the tax year 2023/24 (6 April 2023 - 5 April 2024), there were 14 paydays, and as a result of this some colleagues received an additional tax allowance.
How could this affect the tax I pay?
Most colleagues have a ‘Personal Tax Allowance’, which is the income you’re entitled to earn before you have to pay any tax. In the 2023/24 tax year, this was £12,570. When working out Pay As You Earn tax (PAYE), your personal allowance is spread across the normal number of pay periods, in our case 13.
On 5 April 2024, the extra pay period allocated an extra tax-free allowance to some colleagues and as such those colleagues received more take-home pay than they were entitled (see example below). You might not have noticed this because your take-home pay is likely to have been the same as previous periods. In reality, it should have been lower.
This situation has affected nearly all companies who operate a 4-weekly pay cycle, including other Co-operatives.
Will HMRC contact me?
Colleagues earning below to Personal Tax Allowance (£12,570) should not be affected but for others, HMRC will need to recover this overpayment over several months and will write to you if you are affected to notify you of an adjustment to your tax code.
What do I need to do?
Whilst in general HMRC will take the over payment throughout the year as described, and there is therefore no action for you to take, clearly there may be exceptions to this. If there are specific circumstances individual to you, then it may be the case that HMRC contact you directly.
If you do have any concerns or wish to find out more on how this impacts you, please contact HMRC by clicking here.
Alternatively, please contact your line manager in the first instance. In the event that you are still unclear please contact a member of the Payroll team.
Example of impact of additional allowance
A colleague who has a full personal tax allowance and pays tax at 20% on earnings above this allowance, will have been paid £193 more than they were entitled. This is because they received an extra tax allowance of £967 in pay period 14, amounting to a tax benefit of £193 (20% of £967). In this case, HMRC will reduce their personal allowance in the 2024/25 tax-year by £967and recover the £193 overpayment. This recovery will be spread over a number of months to the end of the tax year.