PAYE: Pay As You Earn

What is PAYE? 

PAYE stands for Pay As You Earn. 

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It is the system normally used by employers to collect Income Tax and National Insurance from employees through payroll. 

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Your employer's payroll software calculates how much Income Tax and National Insurance should be deducted from your pay. 

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For Income Tax, the amount deducted depends on factors including: 

• how much taxable income you receive 

• your tax code 

• how much of your taxable income is above your Personal Allowance (GOV.UK) 

 

The deductions are made before your wages are paid to you. 

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What does your tax code do? 

Your tax code gives your employer information needed to calculate Income Tax correctly. 

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It is therefore important that HMRC has accurate information about your employment and income. 

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You can use HMRC's online service or app to: 

• check your tax code 

• check your Personal Allowance 

• see estimated income and tax 

• report some changes that affect your tax code (GOV.UK) 

 

Is PAYE always correct automatically? 

PAYE handles most employment tax automatically, but that does not mean you should ignore your payslip. 

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Changes in jobs, income or personal circumstances can sometimes mean the information HMRC holds needs updating. 

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Key takeaway 

PAYE makes tax collection easier for employees, but understanding your payslip and tax code helps you spot possible problems.