What is PAYE (Pay As You Earn)?
The system HMRC uses to collect income tax and National Insurance directly from employee wages.
Key Facts
- ✓ Tax and NI are deducted at source by your employer
- ✓ Based on your HMRC-issued tax code
- ✓ Employers report via Real Time Information (RTI)
- ✓ Most employees do not need to file a tax return
Explanation
Pay As You Earn (PAYE) is the method by which HM Revenue & Customs collects income tax and National Insurance contributions from employees in the United Kingdom. Under PAYE, your employer deducts tax and NI from your wages or salary before paying you, so you receive your net (after-tax) pay directly. The amount deducted is determined by your tax code, which HMRC issues to your employer. Most employees in the UK are taxed through PAYE and never need to file a self-assessment tax return. PAYE also covers statutory payments such as Statutory Sick Pay and Statutory Maternity Pay. Employers must report payroll information to HMRC in real time through the Real Time Information (RTI) system each time they pay their employees.
Try the calculator: Use our free calculator to see how paye (pay as you earn) affects your finances.
Salary Calculator →Other Glossary Terms
A UK tax on earnings and self-employed profits that funds the state pension, NHS, and benefits.
Personal AllowanceThe amount of income you can earn each year before paying income tax — currently £12,570.
Basic Rate (20%)The 20% income tax rate applied to taxable income between £12,571 and £50,270.
Higher Rate (40%)The 40% income tax rate applied to taxable income between £50,271 and £125,140.
Additional Rate (45%)The 45% income tax rate applied to taxable income above £125,140.
Stamp Duty Land Tax (SDLT)A tax paid when buying property or land in England and Northern Ireland.
Frequently Asked Questions
What does paye (pay as you earn) mean?
The system HMRC uses to collect income tax and National Insurance directly from employee wages.
Why does paye (pay as you earn) matter?
Understanding paye (pay as you earn) helps you make informed financial decisions and ensure you pay the correct amount of tax. Getting it wrong could mean overpaying or underpaying HMRC, which may result in penalties or missed savings. Use our calculators to see how paye (pay as you earn) applies to your personal situation.
Where can I find more information about paye (pay as you earn)?
HMRC publishes official guidance on GOV.UK for all UK tax topics. For a quick overview, our glossary entries are written in plain English and updated each tax year. You can also use our free online calculators to model different scenarios and understand how changes to your income, deductions, or allowances affect your overall tax position.