This blog answers the question “Do You Get Taxed On Holiday Pay? Holiday Pay is liable for taxation from HMRC in the year in which the leaves are taken. This blog looks at an example of holiday pay which is the Christmas bonus pay.

Do You Get Taxed On Holiday Pay?

Yes, you have to pay tax on holiday pay. Taxes on Holiday Pay are deducted on your P11D tax return forms.

Workers get a week’s wages for each week of “statutory leave” that they take. Statutory leave consists of 5.6 weeks of holiday pay a year.

To obtain your holiday pay entitlement first calculate the worker’s average hourly wage for the last 30 days (one month). For this divide the workers monthly wages by the number of hours worked in the month.Next, calculate the average hourly pay by multiplying the hourly wage rate by the average number of hours worked by the employee each week.

The number of yearly paid holidays that you are entitled to depends on the number of hours you work in a week. For working a 5 (or more) day week, you have 28 days of paid holiday available, for working a 4 day week, you have 22.4 days of paid holiday available, for working a 3 day week you have 16.8 days of paid holidays available, for working a 2 day week, you have 11.2 days of paid holidays available and for working a 1 day week you have 5.6 days of paid holidays available a year.

What are taxes on Christmas bonuses?

Any Christmas bonuses given by a company need to be reported to HMRC. Tax and National Insurance contributions are also required to be paid on these Christmas rewards. Christmas bonuses are

Christmas bonuses include:

  • Cash bonuses.
  • Goods

The cash bonuses need to be added to the value of your employee’s salary. Pay As You Earn tax and National Insurance contributions also need to be deducted from these.

The goods provided need to be mentioned on the P11D form. P11D forms need to be submitted online by 6th July of the next calendar year.

What is the Department for Work and Pensions Christmas Holiday Bonus?

To be eligible for receiving the DWP Christmas Holiday bonus you must be resident in the UK at the time of Christmas holidays. Along with this you also need to be claiming one of the following benefits during this week (5th to 10th December):

  • The Armed Forces Independence Payment
  • The Attendance Allowance
  • The Bereavement Allowance
  • The Carer’s Allowance (Christmas Bonus)
  • The Constant Attendance Allowance
  • The contribution based ESA (Christmas bonus)
  • The Disability Living Allowance (DLA Christmas bonus)
  • The Incapacity Benefit
  • The Industrial Death Benefit
  • The War Pensioners Mobility Supplement
  • Guaranteed Pension Credit
  • The Personal Independence Payment (Christmas bonus)
  • The State Pension (Christmas Bonus)
  • The Severe Disablement Allowance
  • The War Widow’s Pension

What needs to be recorded on my VAT return?

The following items must be shown on your VAT return statement

  • Your total sales and purchases for the period (the full value of sales must be included)
  • The amount of VAT you owe (are indebted for)
  • The amount of VAT you can reclaim
  • The amount of VAT you’re owed from HMRC  (on the VAT return date)

VAT returns are basically taxes on business production within the territory of the UK

Businesses have to register for VAT returns if their revenue is more than £85000.

You must keep the following records for VAT return purposes:

  • Everything you buy and sell
  • Copies of all invoices you issue
  • All invoices you receive
  • Self-billing agreements
  • Any goods taken away for your private use
  • Debit or Credit notes

These records must be maintained for up to 6 years from when your business is set up.

What is a VAT return declaration?

A VAT return declaration is a form to tell Her Majesty’s Revenue and Customs (HMRC) how much VAT you have paid to other businesses and how much VAT you have charged from customers. 

A VAT return needs to be filed every 3 months, for that period, 

You can account for imports on your VAT return by using Postponed VAT accounting

What is Value Added Tax applicable to? 

VAT is collected by the professional who must pay it to the tax authorities. For taxable transactions, the tax is calculated on the price excluding tax according to different rates. The tax system (normal or simplified) depends on the amount of turnover achieved by the company and the amount of VAT payable annually.

Value added tax (VAT) is an indirect tax on consumption paid by the end consumer on certain products or services that he uses on British territory. The companies concerned (known as liable and liable) thus collect VAT and will have to HMRC, after deduction of the amounts of recoverable VAT on the expenditure concerned.

What is a Benefit in Kind?

A benefit in kind is a benefit an employee receives from their company not mentioned on their wage slip. .

All benefits in kind are not all treated equally by HM Revenue & Customs. Some are tax exempt, others are taxable.

There are two main reasons why a benefit should not be taxable.

Firstly when it is considered ‘trivial’ and secondly when it is classed as “Tax Free” by HMRC

A benefit in kind is regarded as non-taxable if it meets all of the following conditions:

  •  the benefit is of a value of 50 or less, including VAT charges
  •  It is not in the form of a monetary gift or a voucher 
  •  it is not a reward or bonus for better performance
  • The benefit is not part of your employment contract; and
  • It is not used to reduce an employee’s salary.

HM revenue and customs permits certain benefits in kind to be tax free, provided the appropriate conditions are met among which are:

  • The bonuses paid by the employer for a recognized corporate personal use
  •  cheap or free canteen meals, if provided for all employees equally
  • Benefits of a mobile or SIM card, for each employee
  • Sporting grounds or practice facilities
  • Orientation programs for assistance
  • Certain expenses on child care
  • company made buses or company subsidies on public buses, to help transportation
  • Bicycles for employees to travel to work as well as motorcycle and bicycle storage space
  • Moving expenses of transfers to other branches or a new job up to a maximum of £ 8,000 perchange of jobs
  • Celebratory gifts for events like employee weddings and retirement 
  • Gifts received from companies or persons other than your employer like a sports event ticket. These gifts cannot exceed 250 in value for a single year
  •  for disabled workers, the necessary tools and equipment to support their employment
  •  Christmas or other annual celebrations for the entire workforce of the company and not costing more than £150 per person

Can I claim refunds for amounts withheld from my earnings when I am made redundant?

Yes, you can claim refunds for amounts withheld from your earnings when you were made redundant by your employer.

It is possible to request a refund of any amount withheld so far in the tax year if you become unemployed on the basis of unused personal allowances However, since your final tax payable is calculated annually, when you owe a refund depends on your taxable income from the time you were made redundant and the end of the official tax year..

If you start another job and give your new employer a P45 from your old job, your new employer should refund you any tax overpayments.

If you are starting a new job and cannot provide them with a P45, you need to request them to mark a checklist of the same form. HMRC will then restore your tax status by the end of the tax year which is after April 5th

If you do not start a new job, it is possible to obtain a temporary reimbursement of social charges unless you are getting taxable benefits such as unemployment benefits. For this refund you will need to complete a P50 form

The cost of hotels and temporary accommodation while on a business trip is

not taxed. However, if you receive a lump sum cash payment to cover these costs they will be taxed.Anything you spend on housing as part of your job may be taxed, deducted as a tax credit from your taxable income with labor income included

What is earned income?

Earned income comprises of the following:

  • All office or employment income received during the tax year, including salaries, wages and fees
  • the cash equivalent of a taxable non-monetary coupon, credit coupon or cash coupon received by the plaintiff during the tax year
  • Taxable severance pay 
  • Sick pay which can be taxed
  • any statutory maternity, paternity (ordinary or supplementary), bereavement or adoption pension paid to parents in excess of £ 100 per week;
  • any statutory allowance for shared paternity leave (in excess of £ 100 per week)
  • the cash equivalent of the benefit of a company provided car or fuel expenses 
  • Strike wage paid to the striking worker as a union member in the year
  • Wages for work done while detained in police custody.

Conclusion

This blog post addressed the question “Do You Get Taxed On Holiday Pay?” Holiday pay availed for the year is taxed on the income tax returns of that year in a P45 form. In case you have not taken any holiday pay for the entire year or your holiday pay gets accrued into the next year you will not be eligible for paying taxes on it.

Please feel free to comment on the content or ask any questions in the comments section below :

Frequently Asked Questions (FAQs) : Do You Get Taxed On Holiday Pay?

Can my employer prevent me from availing my holiday pay entitlement?

Yes, this case of you being prevented from claiming holiday pay can happen if your employer tells you that you are self employed. If you have been wrongly prevented from taking any holiday pay in one year, you can take upto 4 weeks of extra statutory leave in the next year.

Similarly if your employed keeps preventing you from availing your holiday pay entitlement you can carry forward these 4 weeks of extra holiday pay into each next year

On what grounds can I be permitted not to take all my holiday entitlements of a leave year?

  • You’ve been on sick long term leave. Sick leave does not count towards your holiday entitlement
  • You’ve been on maternity leave. Maternity leave also doesn’t count towards your holiday entitlement
  • You have been denied requests for taking a holiday by your employer and so could not take any.

How do I claim a refund if it is too late to amend my tax returns?

You can claim a refund on your tax returns even if it is too late to amend your tax returns. You need to write a letter to HMRC, mentioning why you have overpaid.

Your letter should:

  • Provide  your name, address and social security number. You also should mention your Unique Taxpayer Reference number.
  • Be mentioning information related to  the tax year of the refund
  • state that you are applying for “overpayment assistance”
  • Include as much information as possible regarding why you have overpaid. You can also disclose the exact miscalculated entry.
  • Attach proof of the taxes you have paid, including copies of P60 and P45 if you have them. keep the originals documents with you
  • State how you would like to get a refund. Would you like it to be sent into your bank account, or paid through a check. You can also get the amount reduced from your next years tax returns
  • Be signed in ink and dated with a declaration typed below it reading “ I hereby declare that, to the best of my knowledge, the provided information is accurate and true”

Citations

Holidays with Pay Act 1938

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