What is PAYE?
PAYE is short for Pay-As-You-Earn. It is how employees in the UK pay their income tax.
- Income tax is an annual tax based on the person's income for a full tax year.
- To make income tax easier to collect, the PAYE system was introduced in 1944.
- PAYE is like paying your annual tax bill in instalments throughout the year.
Under the PAYE system, employers must use HMRC's rules to deduct an amount from each pay packet.
HMRC's rules for calculating PAYE are an approximation to the annual income tax figure but they don't match it exactly.
The Payroll Site follows HMRC's rules exactly.
In simple cases, the PAYE for the tax year is very close to the annual income tax figure and the difference is written off.