The term is abbreviated from Pay As You Earn.

It refers to the system used, whereby employers withhold a proportion of wages or pensions.

When too many deductions from wages or pension have been taken it is likely a refund will be received.

PAYE codes are made up of numbers followed by a letter.

The letter refers to the type of allowance we are receiving.

The numbers indicate the amount someone can earn before tax deductions are made. The amount of tax free allowance.

Deductions from income might include:

  • Income Tax
  • National Insurance (NI)
  • CIS
  • Pensions

The task of processing wages is often referred to as payroll or completing a pay run.

Details of PAYE, CIS, statutory pay etc must be reported to HMRC regularly, usually being at least monthly.

Many people are both employed and self-employed. It is helpful to know how they affect each other in regards to tax liability.

At the end of the tax year the employee should be provided with a P60 detailing payments and deductions made.

If a loss is made from self employed income this can be offset against PAYE income.

The tax year runs from 6th April to 5th April the following year.

The P60 is an important document that is proof of PAYE, earnings and contributions and often used when applying for credit.

To avoid having to pay for additional copies, payslips and P60s should be kept safe.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s