What is PAYE?

There are many tax payment routes for small- and large-scale businesses or companies, as well as, for employees and employers. One such scheme is PAYE. 

This article gives you brief and concise information on what you need to know about the PAYE tax payment scheme.

What is PAYE?

PAYE is also known as pay-as-you-earn which is a tax payment scheme employers are lawfully obligated to deduct taxes from their employee's salaries. It is a form of income tax for employees and pensioners. Every business or company owner who employs staff to work for them must register for PAYE.

The HM Revenue and Customs (HMRC) is the official agency that takes all forms of taxes in the UK, including PAYE.

Who pays PAYE?

Even as an employee or pensioner, there are still exemptions on some payment schemes. 

Below is a list of people who must pay PAYE tax.

• Employees
• Pensioners
• Recipients of the following state benefits
  • Carer’s allowance
  • Widow’s pension or bereavement allowance
  • Employment and support allowance – contribution-based
  • Incapacity allowance (after the 29^th week of being paid the first one)
  • Pensions from Industrial Death Benefit Scheme
  • Widowed Parent Allowance
  • Job-seeker Allowance.

How to calculate your PAYE?

Generally, when you have provided your employer, pension provider, or state benefits office with your tax code, they deduct your PAYE tax upfront before paying the rest of your income into your account. 

You can get your tax code from your payslip or through the HMRC gateway at www.gov.uk. You are either assigned a tax code automatically by your employer, or you register with HMRC, informing the government agency about your employment or state benefits status, to obtain one.

However, as a general rule, the amount you pay as a tax on the PAYE scheme is as follows-

• 0% on any earnings up to £12,500,
• 20% on any income between £12,501 – £50,000, 
• 40% on income between £50,001 – £150,000, and
• 45% on anything you earn over £150,001.

When is your PAYE due for payment?

As an employer, you must remit your company’s PAYE to the HMRC by the 22^nd of the next tax month if you remit monthly, i.e., your PAYE for August 2022 must be paid on or before September 22^nd, 2022. 

Otherwise, if you pay quarterly, you must pay your PAYE on the 22^nd of the month after the tax quarter, i.e., for the 2^nd quarter of 2022 which ended in June, you must pay on or before the 22^nd of July 2022.

Can you get a tax return on PAYE?

HMRC pays tax returns for all the tax payment schemes once it is obvious you have overpaid on your tax. The government agency issues the P800 form to every taxpayer it deems has been paying too much or too little tax.

This P800 form is issued after the 5^th of April of the relevant tax year. Most often, it gets sent out in November. You are likely to get a P800 form in your inbox if:

• You changed jobs but your past employer was still paying PAYE on your salary,
• You are getting a pension while still working, or
• You are being paid the jobseeker allowance or employment support allowance.

Conclusion

The HMRC allows a personal allowance on which you are not obligated to pay tax. You should therefore visit their website on www.gov.uk to have a better understanding of whether you have to pay PAYE tax or not.