Subject to the exceptions described below, tax and NIC must be deducted from holiday pay when it is actually paid to an employee1.
Setting aside funds for future holiday pay
Where voluntary deductions from net pay are made during a year which are to be repaid to the employee concerned at holiday time, no deduction should be made from gross holiday payments (ie the amount is deducted from net pay and set aside having been taxed at the time it is made); the amounts are not taxed again when they are repaid2.
But if money is set aside by the employer each pay day under a holiday credit scheme to be paid in a lump sum at holiday time, and the employees can only have the money when they take their holiday, the amount of the lump sum is included in gross pay when the payment is actually made rather than when it is set aside3.
Multiple weeks holiday pay—PAYE tax treatment
Where two or more weeks' pay is
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Web page updated on 17 Mar 2025 17:23