You can pay an employee holiday pay before they take annual leave.
You need to calculate PAYE for the payment and file employment information about it.
You can calculate PAYE using the:
- standard method for lump sum payments
- alternative approach.
The alternative approach taxes the payment as if it was earned while the employee is on leave and paid in their regular pay cycle. You need to calculate PAYE on the employee’s total earnings for the pay period they are on leave. The employee’s total earnings include their holiday pay and salary or wage.
If the employee’s leave spans 31 March, please use the standard method for lump sum payments to prevent the employee being under taxed.
The Employer's guide (IR335) has examples of how to calculate PAYE.
Filing employment information
You need to tell us about the holiday pay payment in the same period you made the payment. There are 2 options.
File separate employment information about the payment
This is outside your regular employment information filing schedule.
File the information about the payment within:
- 2 working days of the date of the payment, if you file electronically
- 10 working days of the date of the payment, if you file by paper.
Include information about the payment in the next regular reporting schedule
In some circumstances you can include the payment when you file employment information about the employee’s next regular payday.
You can only do this if you:
- file electronically
- tell us about the payment before your ‘end date’ for the payment of PAYE and other deductions to us.
Your end date is the:
- last day of the month if you pay PAYE and other deductions to us monthly.
- 15th of the month and the last day of the month if you pay PAYE and other deductions to us twice a month.