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Should I be paying PAYE tax?

  • 3 min read
  • Last updated 2 Apr 2024

You may be wondering, what is PAYE and should I be paying PAYE tax? 

In short, the answer to this question depends on the type of employment you’re in. It also depends on how much you earn in your salary.

PAYE is basically a system that HMRC use that plays an important part in collecting Income Tax and National Insurance from workers across the UK. 

What is PAYE tax?

PAYE, or ‘pay as you earn,’ refers to the method in which you’ll pay Income Tax and National Insurance (NI) through your wages. It’s usually taken from your salary before you even receive it. This is because all PAYE is sent directly to HMRC by your employer.

But it’s not just Income Tax and NI contributions that are collected through PAYE.  Other things that you might have to pay via PAYE are:

  • Student loan repayments
  • Pension contributions

How does PAYE work?

When you start work, you’ll need to hand in a P45 form from your previous employer. If this is your first job, then you have to complete HMRC’s new starter checklist, which your new employer should be able to provide you with. 

Both of these forms tell HMRC that you’ve started a new job, allowing them to create a tax code for you. This tax code then tells your employer how much they need to take off your pay in the PAYE process. 

It’s important to remember that PAYE might be used to collect tax on not just your earnings from your main job, but also on any other income you have.

How do I know if I should be paying PAYE tax?

So, how do you know if you should be paying PAYE tax at all? If you’re in full-time employment, the amount you pay is based on your salary and whether or not you’re eligible for the Personal Allowance. 

This is the amount of tax-free income that everyone in the UK is entitled to receive each year. The current amount for the 2024/25 tax year is £12,570. If you earn over the Personal Allowance, Income tax and NI contributions are deducted from your payslip through PAYE.

Income tax rates

The UK tax system is based on marginal tax rates.  The current Income Tax rates for 2024/25 are:

Band Taxable income Tax rate
Personal Allowance Up to £12,570 0%
Basic rate £12,571 to £50,270 20%
Higher rate £50,271 to £125,140 40%
Additional rate Over £125,141 45%


National Insurance

As an employee, you’ll pay Class 1 (8%) NI contributions on earnings over £242 a week. You pay an additional 2% when you earn £50,270+ i.e. you’re a higher rate taxpayer.

Your situation

Outlined number oneImage of an arrow
Your annual salary
View results

Tax and earnings

Outlined number two
  • Total earnings
  • Tax to pay
    £7,286 income tax
    £2,915 National Insurance
  • Earnings after tax

How your income tax is calculated

There are two main components that are taken off your gross pay –
income tax and national insurance contributions made by your employer.

In your case when you earn £49,000 yearly:

Income tax breakdown

You pay no income tax on first £12,570 that you make

You pay £7,286 at basic income tax rate (20%) on the next £36,430

National insurance contributions breakdown

No contributions on the first £12,570 that you make

You pay £2,915 in contributions (at 8%) on the next £36,430 that you make

On top of these, your employer will also pay £5,027 of additional NI contributions, but these don’t come out of your salary. Your employer has to cover them.

Should I be paying PAYE tax if I’m self-employed?

If you’re self-employed, or if you have a side gig alongside your full-time job, then you’ll need to pay Income Tax and NI in a different way to PAYE. 

If you’re fully self-employed then you’ll need to declare and pay tax on your earnings. You do this through a Self Assessment tax return. 

If you make extra money through a side gig, you still pay PAYE on any earnings from your full-time job. However, you’ll also need to file a Self Assessment tax return on the money you make from your side gig. But, if you earn less than £1,000 from your self-employment job, don’t worry. It’s tax-free and you don’t need to report it.

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