Week 53 – Is this the most complicated part of the PAYE system?
It could be ticked if you are weekly, fortnightly or paid every 4 weeks and your payroll date is a Thursday. And if ticked, this gives you bonus tax credits – but if dealt with incorrectly this could hit you with an underpayment.
The Tax impact of Week 53 adjustments can approx. 200e for weekly and up to 800e for 4-weekly paid persons impacted.
Welcome to the most complicated part of the employee tax system!
Despite perception, the Irish PAYE tax system is more complicated than most international employee tax systems I have dealt with. Even the easier parts of it, such as Flat Rate Expenses for your occupation, or the Rent Tax Credits, have tricks and pitfalls that only experience will teach you.
On the other hand, calculating some tax credits such as Home Carers, can become genuinely complicated. This is clearly a risk to you if you use a system like PAYE Anytime to do your returns – using a tool like this is the equivalent of throwing darts blindfolded, as it does not let you know if what you are doing will give you a refund or an underpayment until the assessment arrives in the post.
What is week 53? Working it in Payroll.
Firstly, if you are monthly paid, you will not be affected by this. Rest easy!
Weekly, fortnightly and 4-weekly paid employees may be impacted. Why? Well let’s take 2015 for example and look at how it affects weekly paid.
A Weekly paid person gets their annual tax credits and tax bands split into an amount for each of the normal 52 weeks in the year. So if you have a very normal 3,300 of tax credits and 33,800 of tax bands in 2015, these would have been split into weekly tax credits of 63.46e and 650e of tax bands per week. Check out our videos on how tax credits and tax bands work to see how they affect your pay.
Let’s take it that your payroll date is Thursday then. In 2015 your first payroll date is 1st January and you would have been given 63.46e of tax credits against your taxes, and had a tax band of 650e for the week, meaning that you progress from paying tax on your income at the higher rate of 40% above the 650e.
You then proceed to get an extra 63.46 of tax credits and 650 of tax band each week, until by 24th December, which is week 52 you have used your full allocations for the year – your 3,300e of tax credit and 32,800e of tax band.
But there are 53 Thursdays in 2015! So what happens to you pay on Thursday the 31st December? As you have used all your tax credits and tax bands already, you could be charged 40% on all your salary in that week, which would be a sick kick in the guts at Christmas. But heck no, it’s Christmas, so you are given by payroll, in accordance with Revenue rules, an extra weeks’ worth of Tax Credits and Tax Bands. Bonus!
It can be a good size bonus too, worth 63e for those earning less than 33,800 and an extra 130e for those earning over that amount in tax band savings. Plus the USC savings gives you a few extra bob, up to 16e. All in all, up to 209e in play for weekly paid people.
Week 53 Adjustment – How Revenue deal with it.
Before 2015, if you got the week 53 adjustment in payroll and then subsequently ran your taxes through an auto tool like paye anytime, you would have ended up with an automatic underpayment. Revenue systems were not giving you the required adjustment. Only if you specially requested it (we check all P60’s received for this), would you have had a manual adjustment made to correct the error.
Similarly, if you had your taxes reviewed some other way, such as by submitting a med1 for medical expenses, you would not have received the week 53 adjustment and got overcharged tax.
In 2015, Revenue are looking to fix this error.
From tax year 2015 onwards, they are using information from Employer returns and from user input P60 to try to get your taxes calculated correctly. We’re awaiting some clarification from Revenue on how this will work from some of the issues we have identified.
Treatment in 2015?
We’ve talked about how week 53 adjustments result in you being given extra tax credits and tax bands in your pay. But the kicker in this is when you get your final Balancing Statement, you will not see increased Tax Credits or Bands, but will see your pay reduced!
We’re not sure why, but it was decided to reduce your taxable pay by an amount equivalent to the benefit you would have received from the extra tax credits and tax bands. If you are of a mathematical bent, this is a nice teaser you could work on!
Strangely, for your USC charge week 53 adjustment, a different approach was taken, with the tax bands increased for the extra week. Not sure why 2 different techniques were used for the different taxes.
How we are treating it here at Red Oak
We do our own independent assessment and calculation of the week 53 adjustment here at Red Oak before submitting any claims for our clients. To ensure we can do this to the best of our abilities, you just need to include a copy of your P60 for 2015 with your application.