Thousands of workers could be slapped with an unexpected tax bill of up to £200 due to a little-known quirk in the HM Revenue and Customs (HMRC), according to a leading think tank.
The Low Incomes Tax Reform Group (LITRG) is sounding the alarm over how Britons could be impacted by the “Week 53” tax year.
Employees who are paid on Thursday April 4 or Friday April 5 could owe extra tax this year because of receiving an additional pay check.
Individuals who are paid weekly will receive payments 53 times rather than 52 times across the 2023/24 tax year.
In this situation, HMRC permits employers to give them more of the tax-free personal allowance than they are entitled to.
This is to make sure that workers take home pay isn’t affected but this means that they will underpay tax.
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Taxpayers who get paid weekly may owe HMRC money
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On top of this, workers who are paid either fortnightly or every four weeks could also be impacted by this tax system quirk.
This is due to the fact the amount of extra personal allowance they will be awarded will be larger which will likely result in HMRC looking to get this underpaid tax back.
The standard personal allowance is frozen at £12,570, so each week equates to just under £242 of allowance per taxpayer.
Last year, Chancellor Jeremy Hunt confirmed that tax thresholds in the UK would remain frozen at their current level until 2028.
Meredith McCammond, technical officer for the LITRG, broke down how taxpayers could be impacted by the “Week 53” financial year.
She explained: “When HMRC later work out how much tax these employees owe for the year compared to how much has been taken off their wages, it may show that not enough tax has been paid overall.
“For a basic rate taxpayer, the amount would be just under £50. As it is not significant, HMRC may choose not to collect this.
“However, the amount owed could be significantly higher if you are paid fortnightly or four-weekly, with almost £100 being owed by the former and £200 by the latter. In these circumstances, it is likely HMRC will try to collect it.”
The consultancy group is urging those who are affected by this rule to check their tax bill with HMRC to see what they could potentially owe.
Ms McCammond added: “Once the tax year ends, HMRC will send a tax calculation setting out any amounts owed, called a P800 They will then try to collect the tax.
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Under the "Week 53" rule, taxpayers may be get extra personal allowance
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“Employees should understand that these tax bills are not due to any error by their employer. They arise simply because of the way the system is designed.
“Employees should check they agree the bill is correct, by comparing it to their own records, such as their P60.
“How the tax is collected depends on the taxpayer’s situation. If they have a continuing employment, their PAYE code might be adjusted to recoup the debt over the next tax year.
"We recommend that all employees check their PAYE code each year.”