Good Friday - Good pay guidance

Good Friday is the first day of the new 2007/08 tax year but because it is a bank holiday, wages are paid earlier and so technically should fall in the 2006/07 tax year. However, HM Revenue & Customs (HMRC) has cleared up the confusion over the operation of Pay as You Earn (PAYE) and National Insurance Contributions (NIC) where pay is due on Good Friday, 6 April 2007.

Gary Hull, director of employment solutions at PricewaterhouseCoopers LLP, said:

“Many employers who pay their staff regularly on a Friday were confused about which tax year money paid on Good Friday would fall into. As Good Friday is a bank holiday, the money would typically have been paid to staff on Thursday 5 April, in the 2006/07 tax year, when really the business meant to pay them in them in the 2007/08 tax year.

“HMRC's original guidance raised a number of practical problems for employers and could have led to inconsistent PAYE deductions at the start of the tax year. However, they have now clarified that for PAYE and Class 1 NIC purposes these payments should be shown as being paid on the 6 April – in the 2007/08 tax year.”

When a regular pay-day falls on a non-banking day - often a Saturday, Sunday or bank holiday - the payment is usually made on the last working day previous to it. HMRC has now clarified that the payment can be treated for PAYE and Class 1 NIC purposes as having been made on the regular payment day.

They give the following examples:

• Pay due on bank holiday Friday 6 April 2007 or Bank Holiday Monday 9 April 2007 (tax year 2007/08) but paid on Thursday 5 April 2007 (tax year 2006/07) may be treated for PAYE/NIC purposes as being paid on 6 April and 9 April 2007 respectively.

• Pay due on Sunday 6 April 2008 (tax year 2008/09) but paid on Friday 4 April (tax year 2007/08) may be treated for PAYE and NIC purposes as being paid on 6 April 2007.