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What is PAYE?

If you're an employee your employer will deduct Income Tax from your wages throughout the year - using the tax code HM Revenue & Customs (HMRC) provides to them - and send the deductions back to HMRC. If you get a pension, your pension provider will deduct tax in the same way. This system of collecting Income Tax is known as Pay As You Earn - usually shortened to PAYE.

PAYE ensures that the yearly amount of tax that you have to pay is collected evenly throughout the year on each payday.

If your circumstances change and you are given a new tax code, HMRC will send you a 'PAYE Coding Notice'. This tells you what your tax code is and how HMRC has worked out the tax-free income you can receive. Keep all PAYE coding notices in case you've got any questions or need to check you're paying the right amount of tax.

 

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