PAYE (Pay As You Earn)

PAYE (short for “Pay As You Earn”) is a way of paying Income Tax and National Insurance through your salary if you’re an employee.

Your employer will do this automatically for you based on your tax code, then send the taxes over to HMRC.

If you are eligible for PAYE, your employer will use your P45 information (or New Starter Checklist if it’s your first job) to create a tax code. They will then take off the tax you owe from your wage and pay it to HMRC. You’ll receive a summary of these payments annually in your P60.

Until you earn over £12,570, you don’t pay any Income Tax – this is called the Personal Allowance.

When you earn over this amount, here’s how you’re taxed:

  • 20% on anything you earn between £12,571 and £50,270
  • 40% on anything you earn between £50,271 and £125,140
  • 45% on anything you earn over £125,141

PAYE doesn’t just deduct Income Tax and National insurance. Other things you might have to pay via PAYE are:

What you need to remember about PAYE

  • You can usually only pay the taxes related to employment
  • Most other sources of income (for example, you have a side hustle, or also rent property, or you sold some shares) can’t be taxed via PAYE. You need to file something called a Self Assessment for them.
  • If your income comes solely from a pension, you must also submit a Self Assessment
  • If you earn over £100k and pay via PAYE, you need to submit a Self Assessment. Your taxes will already be paid via your PAYE – this is just something HMRC asks high earners to do.

Frequently Asked Questions

  • What is the tax year?

    The tax year – also known as the fiscal year – runs from 6th April until the following 5th April. You can keep a record of the PAYE income tax you’ve paid over the course of the tax year with your P60.

  • How long should I be storing my Tax Records?

    In the UK, you must keep your tax records for at least six years from the end of the relevant tax year. Accounting software can help you to digitally store your records without taking up space in your office!

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