What Is PAYE?

PAYE — Pay As You Earn — is the system HMRC uses to collect income tax and National Insurance from employees. Your employer deducts both from every payment before you receive it, and sends the money to HMRC. Around 85% of UK tax on earnings is collected this way.

How the cumulative system works

PAYE is cumulative: each pay day, your employer looks at your total pay since 6 April and your total tax-free allowance since 6 April, and deducts tax on the difference at the band rates. That is why a bonus month can over-deduct and the following months quietly give it back — by 5 April the year balances. The exception is an emergency code (W1/M1), which treats each period alone; see tax codes explained.

P45, P60 and P11D

A P45 is issued when you leave a job — give it to your next employer so your cumulative record continues. A P60 summarises your pay and deductions for the full tax year, issued by 31 May. A P11D reports taxable benefits like a company car, which usually adjust your tax code the following year.

What PAYE does not cover

Self-employment income, most rental income and untaxed interest are handled through Self Assessment instead. If you have both a job and significant other income, you may need a tax return even though PAYE covers your salary. Estimate your PAYE deductions with the PAYE calculator.