Pay As You Earn (PAYE)
The HMRC system for collecting income tax and National Insurance directly from wages — your employer deducts it before paying you.
Pay As You Earn (PAYE) is HMRC’s pay-day withholding system. Employers deduct income tax and National Insurance from each pay packet using a tax code supplied by HMRC, and pay both the deductions and the employer NI contribution to HMRC monthly. From the employee’s perspective the headline number on a payslip is gross pay minus PAYE minus NI, with student-loan or pension deductions layered on top.
The system relies on the tax code. A 2026 standard code like 1257L means the employee gets £12,570 of personal allowance, split across the pay periods of the year. If the code is wrong — say HMRC hasn’t updated it after a benefit change — the wrong amount of tax gets deducted, and the employee gets a P800 refund or bill at year-end.
PAYE doesn’t always settle the full liability. Anyone with side income above the trading allowance, untaxed savings interest above the personal savings allowance, or rental income has to file a self-assessment return on top. High earners hit the £100,000 personal-allowance taper, which PAYE handles via tax-code changes — but only if HMRC knows.
Use the PAYE calculator for a take-home view at any salary, or the self-assessment calculator when there’s untaxed income to settle.
Published 10 May 2026