Holiday pay

Produced by Tolley in association with Philip Rutherford
Holiday pay

The following Employment Tax guidance note Produced by Tolley in association with Philip Rutherford provides comprehensive and up to date tax information covering:

  • Holiday pay
  • Introduction
  • Normal payment times
  • Payment in advance
  • Cumulative tax code
  • Week 1 tax code
  • Leaving employment after the holiday
  • National insurance treatment
  • Method A ― split the payment
  • Method B ― the whole sum
  • More...

Introduction

As with any other cash payments to an employee, holiday pay should be included in payroll, and is subject to tax and Class 1 NIC. The key consideration is the timing of the payment to the employee and the impact that this has on the timing of the deduction of tax and NIC. Guidance on this subject is in HMRC’s CWG2 section 2.7.4.

Normal payment times

If an employer continues to pay the employee at the usual time, then the employer should continue to deduct PAYE and Class 1 NIC in the normal way.

See Example 1.

Payment in advance

If the employer pays a weekly-paid employee in advance of a period of holiday, the PAYE procedures depend on whether the employee is on a cumulative tax code or a Week 1 tax code. See Example 2.

The same principles apply to monthly-paid staff, but it is much more usual for monthly paid staff to be paid holiday pay at the normal payment time.

Cumulative tax code

If the employee is on a cumulative tax code

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