PAYE calculator & detailed explainer for UK employers – everything you need to know about Pay As You Earn

Last checked and updated on 12 May 2022

PAYE (Pay As You Earn) is a system used in the UK to collect income tax and national insurance contributions from employees. It is a self-assessment system, which means that employers are responsible for calculating how much tax and NICs their employees should pay, and submitting these figures to HMRC (Her Majesty’s Revenue and Customs).

In this article, we will explain everything you need to know about PAYE, including how to register for it, calculate your payments, and claim back any overpaid tax. We will also take a look at the basics of PAYE tools, such as the PAYE calculator. So if you’re a business owner in the UK who needs to know more about PAYE, read on!

What is PAYE?

Pay As You Earn (PAYE) is the system that HM Revenue and Customs (HMRC) uses to collect Income Tax and National Insurance from employees.

As an employer, you will need to deduct PAYE from your employees’ wages or salaries before paying them. You will then need to pay this money to HMRC along with any other deductions, such as National Insurance.

Important note for employers
It is your responsibility to make sure that you pay HMRC the correct amount of PAYE and National Insurance. If you do not, you may be liable for penalties.

You will also need to register for PAYE if you have not done so already. This can be done online through the HMRC website.

Once you have registered, you will be given a PAYE reference number. This is the number that you will need to use when making any payments to HMRC.

Registering for PAYE

In order to deduct tax and NICs from your employees’ wages, you will need to register for PAYE with HMRC. This can be done online, by phone, or through the post. Once you have registered, you will be given a PAYE reference number, which you will need to use when submitting your returns.

PAYE payment deadline – When does PAYE have to be paid?

HMRC must receive your payment by the 19th of the month following the end of the tax period. For example, if you are paying for the tax period ending on the 31st of March, your payment must be received by HMRC by the 19th of April. If you pay late, you will be liable for interest and penalties.

How to pay PAYE

There are three ways to pay: online, by phone, or through the post. The easiest way to pay is online, through the HMRC website. You will need your PAYE reference number, and your bank details. You can also pay by phone, using a credit or debit card. Finally, you can pay by cheque through the post. However, this method is not recommended, as it can take up to six weeks for your payment to be processed.

PAYE tax brackets – How much is PAYE tax?

The amount of tax you will pay depends on how much you earn. This is known as a PAYE tax bracket. The table below shows the PAYE tax brackets for the 2019/20 tax year:

Income Tax Rates and Allowances 2021/222020/23
Personal Allowance£12,570£12,570
Basic rate20%20%
Higher rate40%40%
Additional rate45%45%

As you can see, the personal allowance is the amount of money you can earn before you start paying tax. The basic, higher, and additional rates are the percentages of tax you will pay on your income.

PAYE personal allowance

The personal allowance is the amount of money you can earn before you start paying tax. The current personal allowance is £12,570.

PAYE tax return explained

Once you have registered for PAYE, you will need to submit a tax return to HMRC. This is done through the Self-Assessment system. The tax return must be submitted by the 31st of October following the end of the tax year. For example, if you are filing a return for the 2022/23 tax year, it must be submitted by the 31st of October 2023.

The tax return is used to calculate how much tax you owe for the year. It takes into account your income, deductions, and any other factors that may affect your tax bill.

PAYE tax refunds – How to claim PAYE tax back

If you have paid too much tax, you may be entitled to a refund. This can be claimed by filing a self-assessment tax return. The refund will then be paid to you by HMRC.

Basic PAYE tools

HMRC offers a number of online tools to help you with your PAYE obligations. These include the PAYE calculator, which can be used to calculate how much tax you owe, and the tax return.

PAYE and self assessment

If you are self-employed, you will need to file a self-assessment tax return. This is because you are not automatically enrolled in the PAYE system. PAYE is only for sole traders or companies which have set up a payroll.

PAYE RTI explained

RTI stands for Real Time Information. It is a system that allows HMRC to track your PAYE payments in real time. This means that you will need to submit your payment information to HMRC every time you make a payment.

PAYE and sole traders

If you are a sole trader, you will not be automatically enrolled in the PAYE system. This means that you may need to register for PAYE and/or submit a self-assessment tax return in order to pay tax on your income.

Frequently asked questions

What is PAYE?

PAYE stands for Pay As You Earn. It is a system that allows HMRC to collect income tax and National Insurance from employees.

How to pay PAYE?

It can be paid online, through the HMRC website. You will need your reference number, and your bank details. You can also pay by phone, using a credit or debit card. Finally, you can pay by cheque through the post. However, this method can take up to six weeks for the payment to be processed.

When does PAYE have to be paid?

It must be paid by the 19th of each month. If you are paying by cheque, the payment must be received by HMRC by the 21st of the month.

What is the PAYE deadline?

The deadline is the 19th of each month. If you are paying by cheque, the payment must be received by HMRC by the 21st of the month.

How much is PAYE tax?

PAYE tax is calculated as a percentage of your income. The current rates are 20%, 40%, and 45%.

What is the PAYE personal allowance?

The personal allowance is the amount of money you can earn before you start paying tax. The current personal allowance is £12,570.

What is RTI?

RTI stands for Real Time Information. It is a system that allows HMRC to track your PAYE payments in real time. This means that you will need to submit your payment information to HMRC every time you make a payment.

I am self-employed, do I need to file a self-assessment tax return?

If you are self-employed, you will probably need to file a self-assessment tax return. This is because you are not automatically enrolled in the PAYE system.

I am a sole trader, do I need to register for PAYE?

If you are a sole trader, you will not be automatically enrolled in the PAYE system. This means that you may need to register for PAYE and submit a self-assessment tax return in order to pay tax on your income.

How do I claim a PAYE tax refund?

If you have paid too much tax, you may be entitled to a refund. This can be claimed by filing a self-assessment tax return. The refund will then be paid to you by HMRC.

What are the basic PAYE tools?

The basic tools include the PAYE calculator, which can be used to calculate how much tax you owe, and the tax return.

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Important – The information provided in our articles is intended to be for general purpose use only, and not advice for you or your business. We strive to publish accurate information, but encourage you to fact-check and seek expert guidance. We recommend that you always speak to a qualified professional to get advice about how to operate your business under your specific requirements and circumstances.