United Kingdom: Planning for Early Christmas Payroll and Banking Cut Off Dates

published on 15 December 2022 | reading time approx. 4 minutes

​The Christmas holidays are just around the corner, which means that employers need to plan ahead to ensure payroll and salary remittances have been processed in good time – particularly ahead of office closures.

• Submitting RTI Information for Christmas payroll »

• Selecting Payroll Dates for December »

• Early FPS and EPS Payroll Submissions »

• Advice for a Smooth Christmas Payroll »

• Accounting for Workplace Christmas Celebrations »

 


Many businesses opt to pay staff early, often on the last working day before the festive holidays, which also means making adjustments to payroll software to account for payments made before contractual payment dates.
 


Submitting RTI Information for Christmas Payroll


Employers must submit their RTI (Real Time Information) returns, as usual, retaining the normal salary payment date. The FPS (Full Payment Submission) field should be left as normal, with the majority of payroll software allowing payroll clerks to override the default payment date.
 

For example, if you intend to pay staff on Friday, 23rd December, rather than on Friday, 30th December, field 43 should still state the latter – it is wise to review the RTI information within your software before submitting.
 

If employees receive Universal Credit payments and their payroll data is incorrect, this can have a knock-on effect over Christmas, so it is important to verify that figures and payment data are accurate.
 

There is a little flexibility in that HMRC allows employers to file their FPS on or before the contracted date rather than the expected payment date to allow for advance filings.
 


Selecting Payroll Dates for December


Businesses have several options for running Christmas payroll, and although many opt to pay their staff early, they are not legally or, in most cases, contractually obliged to do so.
 

The main consideration is to ensure that whichever decisions you make, your regular pay date is still reported to HMRC – changing the pay date on your FPS submission can cause issues with social security and benefit income.
 

Bank holidays for 2022 are as follows:
• Monday 26th December 2022
• Tuesday 27th December 2022
• Monday 2nd January 2023
 

The last working day is Friday, 30th December, so companies that remit salaries via BACs will need to process payments through their business bank account by 28th December to ensure payments reach employees' accounts in time.
 

If your business is shut between Christmas and New Year, and you plan to pay salaries on the last working day, this will need to be scheduled in advance or actioned remotely.
 

Salary payments made through Faster Payments can be processed at any time, with most banks offering 24/7 access through online banking. However, it is important to note that not all banks, building societies or financial institutions will process a Faster Payment on a weekend or non-banking day.
 

It may be advisable to process payments a day in advance to ensure staff are not left without salary income until the next working day. 
 

For example, a payment processed on Friday, 23rd December, due for arrival on Monday, 26th December, could be postponed until Wednesday, 28th December, if the employee's bank does not complete the transaction over the weekend or bank holiday days.
 

In some instances, it may not be possible to include all aspects of pay during a payroll run that is processed early – for example, overtime or bonuses earned during December that will not be calculated until month end.
 

The right solution will depend on your company and staff. Still, it could be to make a supplementary payroll run in early January, estimate additional payments owing and adjust for variances the following month, or carry forward payments to the normal January payroll date.
 


Early FPS and EPS Payroll Submissions


As we have explained, FPS and EPS (Employer Payment Summary) returns are still due on the regular date, but you can pay employees earlier, provided you keep the FPS as the normal contractual date.
 

EPS submission deadlines also remain unchanged, so your EPS is due between 20th December and 19th January – late returns can attract a significant fine.
 

Many businesses use the BACs system for payroll, which needs to be dated two banking days before payday. You may need to generate your BACs payments ahead of time or may have the option to use automated payroll software to raise banking instructions for you.
 


Advice for a Smooth Christmas Payroll


Communication is always important, and it is essential to let staff know when they can expect to be paid in December, avoiding confusion or enquiries from employees who are unsure whether they will receive their salaries early or during the festive holidays.
 

If you have alternative arrangements in place or specific payment processes for closures included within employee contracts, these should, of course, be adhered to, and a reminder should be circulated among all colleagues.
 

There may be other factors to consider, such as:
• Carrying over annual leave if your employee holiday allowances run alongside the calendar year. You may permit staff to carry forward unused entitlements, pay additional salary in lieu of leave, or need to remind staff to take days owing to avoid losing their entitlement.
• Additional income tax owing on Christmas bonuses – these are subject to National Insurance and tax deductions in the usual way. 
• Advising whether other gifts, such as vouchers, are also subject to tax. Any gifts worth over £50, unrelated to work or performance, and either are cash or can be exchanged for cash are considered non-trivial and a taxable benefit. The exception is for staff earning under £8,500 per year.
 

Bonuses should always be paid through payroll rather than given in physical cash, and in almost all cases, the tax rate is the same as for any other salary income.
 

If staff are expected to work over Christmas, this should be pre-planned, and your payroll team, accountant or payroll clerk must be informed to ensure this is accounted for in the December payroll.
 

Businesses are not obliged to pay additional rates for bank holidays, and this is not a statutory requirement. However, many companies will offer time and a half, or double pay, for staff who volunteer to work on a public holiday.
 


Accounting for Workplace Christmas Celebrations


While planning for Christmas payroll, it may also be practical to consider Christmas parties and celebrations, with most colleagues planning events, meals, or other festivities to mark the holidays.
 

There are potential tax and National Insurance implications, depending on the nature of the event, who organises and pays for it, and the monetary value associated.
 

Business Christmas parties are exempt from tax and National Insurance if all the following conditions apply:
• All company employees are invited to attend.
• The event is held annually – rather than as a one-off.
• The total cost per person does not exceed £150.
 

Companies hosting Christmas parties that do not meet those criteria can opt to use a PAYE Settlement Agreement (PSA) to cover the tax obligations on behalf of employees to ensure they do not have deductions made from their salaries.