Holiday Pay & Tax

winter02

Hi everyone,
I was paid 7 days of annual leave in error this month which obviously led to me paying more tax and NI than usual.
Payroll is going to reverse this for next month and deduct this holiday pay from my salary so I assume that I will pay less tax and NI than I normally would each month? Thanks

[Deleted User]

winter02 said:

Hi everyone,
I was paid 7 days of annual leave in error this month which obviously led to me paying more tax and NI than usual.
Payroll is going to reverse this for next month and deduct this holiday pay from my salary so I assume that I will pay less tax and NI than I normally would each month? Thanks

If they are going to do that your Pay, tax and NIC and Net Pay totals for the first two months should be exactly as it was had the error not been made. 

winter02

Thanks. So basically next month will balance out this one, so for example, if my gross monthly pay was 5k and I was paid 1k A/L, next month gross pay will be 4k (5k - 1k)? 

[Deleted User]

winter02 said:

Thanks. So basically next month will balance out this one, so for example, if my gross monthly pay was 5k and I was paid 1k A/L, next month gross pay will be 4k (5k - 1k)? 

As well as I could have put it!

zagfles

It depends. If you have a normal (cumulative) tax code, the total tax will be the same. If you have a non cumulative code eg one that ends M1 or X then you might pay too much/little but the total tax actually due will be the same, just might take some manual sorting.

For NI, it won't necessarily be the same because NI works on a pay period basis, not an annual basis. You could even end up paying less NI because of the mistake, as the NI rate drops from 12% to 2% for income over £4189 a month. Although I think there's some way payroll can reallocate between months when mistakes are made.