Understanding PAYE: The Who, What, How and How Much

PAYE or Pay As You Earn is a system of collecting taxes from employment income during a tax year. This is applicable to employed individuals, those receiving a pension from former employers, those with an annuity paid under a pension plan or a combination of pension and annuity, and for individuals with income liable for the tax. 

How often tax is taken, depends on the frequency with which you are paid, whether weekly, monthly, quarterly or annually. Employees are liable for tax whether employed part-time, full-time or on a casual basis. 

How much tax will be deducted from your earnings?

The amount depends on the tax code provided by HMRC. The tax agency will issue a PAYE code to your employer, so they will know how much tax to take off your income. The same code will tell you how your tax code is worked out and will be outlined in the PAYE coding notice (form P2).

If you don’t understand or want to know more about your PAYE code, don’t hesitate to ask  HMRC for more information. 

Exercise prudence & vigilance with tax deductions

It is important that you check your PAYE coding notice to ensure that you’re paying the correct amount of tax. Again, refer to HMRC for any clarification. Always check your payslip for any discrepancies in your pay before and after-tax, your NIC, and any student loan repayment deducted from your income. You should also make sure that your employer is using the correct tax code, which should show on your payslip. 

Think you may be due a tax refund? Apply here to get your tax back.

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