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PAYE basically means paying income tax and national insurance (NI) through your wages.
Every time you’re paid, your employer takes your tax and NI from your wages and sends it to HMRC.
Other things that you might be paying via PAYE are:
|Document||What it shows||When you get it|
your tax code
|P60||the Income Tax that your employer paid last year||in April |
(for the tax year that just ended)
|P45||same||when you leave a job|
|Notice of coding||your new tax code||January or February |
(for the following year starting in April, and only if you’re claiming tax reliefs or paying other taxes through PAYE)
Until you earn over £12,500, you don’t pay any income tax – this is called the Personal Allowance.
Whatever you earn over this amount will be taxed like this:
Besides income tax, about 12% of your wages will go to National Insurance – use our net salary calculator to see how much you should have at the end of the month.
HMRC uses a tax code to tell your employer how much tax to deduct from your wages.
A tax code is made of a number followed by a letter:
Don’t worry about understanding all the letters (here is a longer guide on the tax code if you’re curious), just remember that in the 2020/21 tax year, the most common tax code is 1250L.
Basically, if your tax code is not 1250L, contact HMRC – you might be due a tax rebate.
If you’re have a side gig besides your full-time job, you need to pay tax on this income by filing a Self Assessment tax return.
If you earn less than £1,000 from self-employment, don’t worry – it’s tax-free and you don’t need to report it.
Your pension provider will pay tax in a way similar to PAYE – in most cases you don’t need to worry about doing a tax return.
This page from the UK Government shows it works and how much you can take out of your pensions pots tax-free.
Most people in full-time jobs who only have PAYE income never have to bother with tax returns.
The only times when you need to submit a Self Assessment tax return are:
If you’re not sure which one applies to you, read our guide to who needs to file a tax return here – it’s a long list.
If you do need to file a tax return, our certified accountants can do it for you 100% online and for a flat £119.