To find out more, you can either watch our video or read about it below.
PAYE stands for Pay As You Earn. It is the system for collecting income tax from your earnings or pensions during the tax year. As with all forms of income tax the tax year begins on 6 April in the year and ends on 5 April in the following year.
How often tax is taken off depends on how often you are paid – usually weekly or monthly for employees.
How is it calculated?
HMRC will calculate a tax code for you and send it to your employer. Most PAYE codes are made up of a number followed by a letter:
- the letter relates to the type of allowance you are getting
- the number shows the amount of the allowances which may be set against tax.
Your employer then uses that tax code to work out how much tax to take off your weekly or monthly pay or pension using the income tax rates and banding for the current tax year. They pay over that tax (and National Insurance contributions, if appropriate) to HMRC on a monthly basis.
What information will I be given?
You will be given a payslip each time you are paid. It may show the tax code your employer used to work out the tax to deduct from your gross pay.
If you are employed at 5 April, the end of the tax year, your employer will give you a P60 ‘end of year certificate’ by 31 May. This will show your pay, the tax deducted and usually the final tax code operated. It is always worth checking you tax code to make sure it is correct.
If you leave a job during the tax year your employer will issue you with a P45 which shows your pay and the tax deducted for the tax year to date. You give this to your new employer when you start another job.
We hope you have found this useful. If you have any queries, please get in touch. We’d love to help.