Many employees may encounter an unexpected tax liability for 2023/24 due to how employees are taxed when an additional pay day falls in a tax year (this happens every few years because a year is 1 day longer than 52 weeks and 2 days longer in a leap year). Those affected are weekly paid workers who had a payment on Thursday 4 April or Friday 5 April. Some fortnightly and four weekly workers will also be affected.
Affected workers will receive one additional payment in the 2023/24 tax year. Weekly paid workers could be paid 53 times in the 2023/24 tax year, rather than 52. The PAYE system gives 1/52 of the tax-free personal allowance each week, so normally you would have paid the right amount of tax by the time you reach week 52. However, with 53 paydays, the system gives an extra 1/52 of tax-free personal allowance (£242) so your tax home pay is unaffected but what it does mean is that you will have underpaid tax.
For a basic rate weekly paid worker, the underpayment will amount to just over £48, which HMRC may, or may not, decide to collect. For higher rate taxpayers or those paid fortnightly or every four weeks, the underpayment will be significantly more, making it more likely that HMRC will issue a tax calculation to collect the additional tax. Anyone receiving a calculation should check it carefully to make sure it is correct. Normally the tax could be collected through an adjustment to the worker’s tax code in the following year but, in some circumstances, might need to be paid over to HMRC separately.
This does not affect National Insurance contributions which are worked out on each payment, not on an annual basis.
Further reading: Low Incomes Reform Group's post