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PAYE (short for “Pay As You Earn”) is a way of paying Income Tax and National Insurance through your salary if you’re an employee. 

Your employer will do this automatically for you based on your tax code, then send the taxes over to HMRC.

How does Pay As You Earn work?

If you are eligible for PAYE, your employer will use your P45 information (or New Starter Checklist if it’s your first job) to create a tax code. They will then take off the tax you owe from your wage and pay it to HMRC. You’ll receive a summary of these payments annually in your P60.

Until you earn over £12,570, you don’t pay any Income Tax – this is called the Personal Allowance.

When you earn over this amount, here’s how you’re taxed👇

  • 20% on anything you earn between £12,571 and £50,270
  • 40% on anything you earn between £50,271 and £125,140
  • 45% on anything you earn over that

PAYE doesn’t just deduct Income Tax and National insurance. Other things you might have to pay via PAYE are:

  • Student loan repayments
  • Pension contributions

What you need to remember about PAYE

  • You can usually only pay the taxes related to employment
  • Most other sources of income (for example, you have a side gig, or also rent property, or you sold some shares) can’t be taxed via PAYE. You need to file something called a Self Assessment for them. Find out who needs to file a tax return
  • If your income comes solely from a pension, you must also submit a Self Assessment
  • If you earn over £150k (until 2024/25) and pay via PAYE, you need to submit a Self Assessment
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