Employer Further Guide to PAYE and NICs - HM Revenue & Customs

Holiday pay
This section describes the special rules for working out NICs
and deducting PAYE on certain types of holiday payments.
39 Holiday pay in the construction industry and
similar schemes
The following information relates to schemes for holiday
pay in the construction industry or similar schemes when a
group of employers contribute to a central, independently
managed holiday pay fund (such as electrical contracting,
heating, ventilation and domestic engineering industries).
For PAYE purposes
Include in gross pay:
• all holiday pay that is paid by you
• the cost of holiday pay stamps or credits from an
unapproved scheme. These must be treated as pay at
the time when they are allocated to the employee
(for example by sticking stamps on a card).
Do not include in gross pay:
• the cost of holiday pay stamps or credits which are issued
under a scheme approved by us
• any holiday pay that is paid under an approved scheme
by the fund itself. In these cases the fund will deduct
tax on this at the basic rate and give the employee a
Certificate of Tax Deducted and make their own end of
year return to HMRC.
For NICs purposes - period up to and including
30 October 2012
Do not include in gross pay:
• the amount spent on the special stamps or credits used
in these schemes
• the holiday pay, whether paid directly by the fund
or through you, where the company is involved in
construction operations and the employee is personally
involved in construction duties.
If you take part in one of these schemes but give holiday
pay to some of your employees which does not come from
the scheme’s funds, include these amounts in gross pay.
For NICs purposes in respect of payments made on or
after 31 October 2012
The disregard allowing for payment to be left out of gross
pay for NICs purposes has been revoked.
From 31 October 2012 all payments of holiday pay are to
be included in gross pay for the purposes of calculating
NICs liability.
40 Holiday pay from money set aside during
the year
For holiday pay made up of amounts voluntarily set aside
from your employees’ pay during the year to be paid at
a certain time, for example, Christmas or their annual
holiday, for both PAYE and NICs purposes include the
amount set aside in gross pay at the time it is set aside.
41 Holiday pay from a holiday credit scheme
For holiday pay from a holiday credit scheme when money
is set aside each payday to be paid in a lump sum when
your employees take their holidays, for both PAYE and
NICs purposes, include these amounts in gross pay:
• at the time they are set aside if your employees have a
right to be paid the money at any time, or
• when the payment is actually made if your employees
can only have the money when they take their holiday.
42 Working out PAYE on holiday pay
You should normally work out PAYE using the tax tables
for the week in which the holiday pay is paid and record it
on the employee’s form P11.
However, if the effect of the holiday pay is that the
employee gets two or more weeks’ pay in one week and
no pay in the following week(s) then, unless week 53 is
involved, work out and record PAYE in the last pay week
for which the employee gets no pay, or the last day in the
tax year if this is earlier.
Where PAYE is being worked out on a Week 1 or Month 1
basis, split the pay equally between the full weeks of the
holiday and work out and record PAYE on each amount
separately for each week. The total amount of PAYE due
for these weeks is the amount you should deduct from the
total holiday pay.
If the holiday overlaps into the next tax year, and the
holiday pay is being paid in week 52, and if there would
normally be:
• 52 paydays in the tax year, all holiday pay paid in
week 52 must be subject to PAYE in week 52
• 53 paydays in the tax year, and the holiday pay paid in
week 52 includes the pay which would normally be paid
in week 53, the amount that relates to week 53 should
be subject to PAYE as a week 53 payment. The rest
should be regarded as a week 52 payment. See page 8
for guidance about week 53 payments.
You must not use this system if:
• the employee gets normal pay during the holiday period
• you know that the employee is leaving or retiring
immediately after this holiday.
43 Working out NICs on holiday pay
If weekly paid employees receive a payment which covers
more than one week and it is, or includes, holiday pay, you
can work out NICs using one of two methods.
Method A
Split the sum up and work out NICs on the payment for
each week separately.
Example
On the last payday before their holiday, you pay
employees their ordinary weekly wage plus two weeks’
holiday pay.
Work out NICs on each week’s pay separately and record
them in the corresponding weeks on the employees’
forms P11.
23 Chapter 2 CWG2(2012)