As an umbrella company employee, there may be occasions when you get paid twice in the same tax period. Depending on your pay schedule, this could be the same month or even the same week.
To those outside the contract employment industry, getting paid twice in the same tax period might sound rather appealing. And, though it’s often not something to be concerned about, it can complicate your payslip and make your tax bill trickier to understand.
So, in this guide, we’ll assess why umbrella employees sometimes get paid twice in the same tax period, and consider the impact that this can have on your payslip and your tax bill. We want you to have all the information you need should you find yourself in this situation.
So, when we talk about ‘tax periods’ in this context, what exactly do we mean?
As you know, umbrella company employees get paid via PAYE. So, Income Tax and National Insurance contributions (NICs) are deducted each time you get paid. Unlike self-employed contractors and sole traders, this means you don’t have to deal with HMRC at the end of the tax year.
The tax year runs from April 6th to April 5th. And, depending on your payment schedule, it splits into weekly and monthly tax periods.
As you might expect, monthly tax periods run from the 6th of one month to the 5th of the next. For example, 6th March 2022 to 5th April 2022 is the final monthly tax period of 2021/22.
When it comes to weekly tax periods, the tax week cycle begins on whatever day the 6th April falls on in that particular tax year. In 2021/22, the tax year started on a Tuesday. So, the weekly tax periods run from Tuesday to Monday.
Tax periods are important as they allow your employer (umbrella company) to divide your tax, NICs and other deductions equally throughout the year in order to calculate your pay correctly as per your payment frequency. Hence why getting paid twice in the same tax period can make things appear a little more complicated from a tax perspective.
There a number of reasons why you might get paid twice in the same tax period. We’ve listed some of the more common ones below:
• You might have changed assignments/clients mid-tax period.
• You may be simultaneously working on different assignments for different clients and/or agencies.
• You may have received a bonus or pay reward for a personal achievement.
• You might get paid earlier in the tax period than you would normally. Common reasons for this are bank holidays or national holidays like Christmas and Easter.
• If you’ve submitted a timesheet late, your payment will likely get delayed until a subsequent tax period.
• Likewise, human error or an unfortunate oversight could also result in payment delays.
• You may have been paid weekly by one client and monthly by another whilst on simultaneous contracts (though, this is rather less frequent).
Clients tend to set your pay frequency. Depending on the arrangement you have with your agency and/or umbrella company, this will be either weekly or monthly. You’ll then get paid once per period whilst working on that particular assignment. Though, as above, there are occasions when this might not be the case.
The main thing to say to those who do get paid twice in the same tax period is that, despite being somewhat uncommon, it doesn’t actually mean there’s a problem. And, it’s unlikely that you’ll need to do anything. Our experienced professionals are accustomed to each of the scenarios outlined above. So, if you find yourself in this situation, they will explain the reasons - and provide the clarification - to you clearly and concisely.
Depending on how much you earn as an umbrella company employee, getting paid twice in the same tax period may mean that your tax bill for that week/month is higher - perhaps substantially higher - than normal. This doesn’t necessarily mean that you’re actually paying more tax, though.
Under PAYE, your tax deductions are adjusted accordingly every time you get paid. So, at the end of the tax year, you should have paid the correct amount of tax, regardless of whether there were double payments in certain periods and non-payments in others.
It’s worth mentioning here that if you’re on a Week 1/Month 1 tax code, any pay you’ve received - or tax you’ve had deducted - within the financial year is not taken into consideration when calculating your pay. One explanation for the allocation of this tax code is that HMRC could be compensating themselves for any underpaid tax. If this type of code applies to you, you should contact HMRC to ascertain why it has been applied.
Week 1/Month 1 aside, tax is ordinarily calculated on a ‘year-to-date’ or, cumulative, basis. Essentially, under this model, your tax ‘rights’ itself throughout the year to ensure you pay the correct amount of tax at the end of the financial year. This explains why employees occasionally get refunded some of their tax in cases where their salary is lower than it may have been recent months. However, this does not happen with those on a Week 1/Month 1 tax code. Hence, it is referred to as ‘non-cumulative’.
Other than the fact you’ll get more than one payslip for that week/month; no, getting paid twice in the same tax period shouldn’t substantially affect your payslip.
The final payslip you receive during that period will take precedence. It will contain all the information you need to know about that tax period, including the total amounts you’ve been paid and taxed. For instance, if you were paid two sets of £500 in one weekly tax period, the final payslip will state your total net pay as £1,000.
Below is an example of how your final payslip might look in similar circumstances.
If you have a question about tax periods, or if you’d like to find out more about our leading umbrella company solution, contact our dedicated team today.