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If you make an extra payment - such as a bonus, overtime or commission payment - on a day that isn't an employee's usual payday, you must take the steps outlined below to work out the PAYE tax and National Insurance contributions (NICs) due on the payment.
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The basic rule for NICs purposes is that you should treat extra payments as part of your employee's total gross pay for the earnings period in which the extra payment is made, providing the employee is normally paid at regular intervals.
This means adding together the amounts of your normal and extra payments to the employee and calculating the NICs owed for the earnings period using this total.
For example, consider what happens if you normally pay your employee £500 each week on a Friday, but one week you make an extra payment of £400 on the preceding Thursday. In this case, you would calculate the NICs due on the combined total of £900 that you paid to the employee in that week if both the Thursday and Friday were in the same earnings period.
If you use commercial payroll software to maintain your payroll records, many packages will deal automatically with extra payments of this sort - check with your software provider.
The P11 Calculator in HM Revenue & Customs (HMRC's) Basic PAYE Tools package can't process extra payments on a different day from the usual payday - you'll need to switch to a commercial software package or to a paper form P11 for the employee to whom you've made the payment.
If you're using a paper form P11, follow the guidance below if you make an extra payment after an employee's usual payday:
More about completing the paper form P11
In general, the procedures for working out the PAYE tax due on extra payments are the same as outlined above for NICs - you add the amounts together and calculate the tax to be deducted using this combined total.
If you're using a paper form P11, there are special procedures you must follow if all three of these conditions apply:
What you must do depends on whether your employee's tax code is a suffix code or a K code, as described below.
Understanding employee tax codes
You should enter the extra payment on form P11 in the 'pay for the week or month' column next to the week or month in which you pay it. Then calculate the tax due in the usual way using the tables you would use for the employee's next normal payment.
If this calculation shows there is tax to be deducted from the payment, deduct it as normal. If the calculation shows that there is tax to be repaid:
When you pay the employee their next payment, take the following steps:
You should enter the extra payment on form P11 in the 'pay for the week or month' column next to the week or month in which you pay it. Add the employee's additional pay figure and work out the tax due on this combined total.
When you give the employee their usual payment for the tax period, calculate the tax due without adding the additional pay for the week or month. Add the amount of the employee's usual payment to the total taxable pay you used when the last payment was made and enter that amount in column 5 of form P11.
More about completing the paper form P11
Download CWG2, 'Employer Further Guide to PAYE and NICs' (PDF 492K)
