Pay As You Earn (PAYE)

PAYE (Pay As You Earn) is the system used by HMRC to collect Income Tax, as well as National Insurance contributions.

These payments come directly from your employer, who will deduct the contributions and tax from your wages, and this is done before you receive your wages from your employer.

Sick pay, maternity pay, paternity pay and adoption pay are all included in PAYE. Bonuses, tips, shares, overtime, shift pay, vouchers and certain expenses are also a number of payments that are covered by PAYE.

Employers need to provide the information before, or on, every payday, rather than the tax being paid in a lump sum, once each year.

Pay slips will detail pay, national insurance contributions and income tax to the employee, as well as any other deductions from the wage.

Do employees need to do anything?

In practical terms, an employee is unlikely to have to do anything in order to pay their income tax, as the responsibility is to the employer.

However, a P60 (End of Year Certificate) will be given out by your employer at the end of each tax year, and contains information on the tax that has been paid in the last tax year. A P60 is required to prove your tax payments, as well as if you need to reclaim overpaid tax, prove your income when applying for a mortgage or loan, or if you are applying for tax credits.

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