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PAYE

PAYE — Pay As You Earn — is HMRC's system for collecting Income Tax and National Insurance from employment income at source. Instead of staff settling a tax bill once a year, the employer deducts the right amounts from each pay packet and passes them to HMRC.

What employers must do

  • Register as an employer with HMRC before the first payday.
  • Run payroll each pay period, applying each employee's tax code and NI category to work out deductions.
  • Report pay and deductions to HMRC in real time — a Full Payment Submission on or before each payday, under the Real Time Information (RTI) system.
  • Pay what is owed to HMRC, normally monthly, and give every worker an itemised payslip.

Starters, leavers and year end

PAYE has its own paperwork rhythm: new starters bring a P45 from their last job (or complete a starter checklist), leavers must be given a P45, and everyone still employed at the end of the tax year on 5 April gets a P60 summarising the year. Tax codes change — HMRC sends notices, and applying them promptly keeps deductions right and queries down.

Income Tax (Earnings and Pensions) Act 2003 and the Income Tax (Pay As You Earn) Regulations 2003 — administered by HMRC, with employer guidance on GOV.UK.

Tommy's clocked hours flow into payroll as a clean record of time worked, so PAYE runs from accurate hours rather than guesswork.

Related terms