Pay As You Earn
(PAYE)
PAYE is the system used by HMRC to collect Income Tax and National Insurance contributions directly from employees' wages before they are paid. Employers are responsible for operating PAYE, calculating deductions, and submitting Real Time Information (RTI) to HMRC on or before each payment to an employee. Errors or failures to operate PAYE can result in penalties.
PAYE (Pay As You Earn) is the HMRC system for collecting Income Tax and National Insurance contributions from employees' pay in real time. Employers must register with HMRC as an employer, operate PAYE from the first payday, deduct the correct Income Tax (using the employee's tax code) and NIC (Class 1), and submit a Full Payment Submission (FPS) to HMRC on or before each payday under Real Time Information (RTI). Employers also pay Employer's NICs (13.8% on earnings above the secondary threshold from April 2025) and contribute to the Apprenticeship Levy (if payroll exceeds £3 million). Errors in PAYE can result in penalties and interest. Employees who believe they have overpaid tax can claim a refund via their HMRC personal tax account or by submitting a self-assessment return. New employees must provide a P45 (from their previous employer) or complete a starter checklist.