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HMRC internal manual

National Insurance Manual

Earnings Periods: Holiday pay paid in advance: payments due during holiday period

If advance holiday pay is paid by an employer whose arrangements involve working a‘week in-hand’, either for basic wages or for an additional payment, egovertime, one or more payments may become due to an employee during their holiday,although the employer may not pay them until they return to work. The calculation of theNICs due depends on the method the employer used to calculate the NICs due on the holidaypay.

‘Regular Interval’ Rule (Method A) Used

If the employer uses the ‘regular interval’ method of calculation (Method A),they should:

  • treat each payment as belonging to the tax week in which it would normally be made; and
  • add the payment and the holiday pay for that week together and work out NICs on the total taking into account the NICs already paid.

If the employer makes the payment in a different tax year from the holiday pay, theyshould calculate the NICs on the payment separately using the NIC rates current at thetime of payment.

‘Holiday Earnings Period’ Rule (Method B) Used

If the employer uses the ‘holiday earnings period’ method of calculation(Method B), and a further payment becomes due to the employee while they are on holiday,they must calculate NICs on it separately in the tax week they pay it.