What is PAYE?

Pay As You Earn (PAYE) is HM Revenue and Customs' (HMRC) system for collecting Income Tax and National Insurance contributions directly from employee wages or pensions before they receive them. Employers deduct these payments automatically, spreading the tax liability across the tax year.

What is PAYE and why am I paying it?

PAYE (Pay As You Earn) is the UK system where your employer automatically deducts Income Tax and National Insurance (NI) from your wages or pension before you receive them, spreading your tax bill throughout the year, so you're paying it as you earn it. You're paying it because it's a legal requirement for employees and pensioners to fund public services, with deductions based on your earnings and personal allowance.
 

Do I get PAYE back?

Yes, you can get PAYE tax back as a refund (rebate) if you've paid too much, usually because of an incorrect tax code, having multiple jobs, starting or stopping work mid-year, or having work-related expenses like uniforms or travel; you typically claim it from HMRC online or by post, often after they send a P800 form. 

Why is PAYE taking my money?

If you are employed, you pay it through a system called Pay As You Earn (PAYE) which is used to collect your Income Tax and National Insurance contributions. Your employer deducts these contributions from your wages and pension.

How much tax do you pay on PAYE?

How is PAYE worked out? If you earn over the personal allowance pay cap, you'll be charged 20 per cent, 40 per cent or 45 per cent of your earnings, depending on whether you fall under a basic rate, higher rate, or additional rate tax band.

ACCOUNTANT EXPLAINS: How to Pay Less Tax

How do I claim back overpaid PAYE?

If you think you have overpaid tax through PAYE in the current tax year, before the end of the tax year tell HMRC why you think you have paid too much. It is probably best to telephone them initially, the helpline for individuals and employees is 0300 200 3300.

What happens if I don't pay PAYE?

An additional penalty of 5% of the unpaid tax at that date. Another 5% penalty on the still unpaid tax. These penalties are in addition to any interest that HMRC may charge on the unpaid amounts from the date the payment was due until the date payment is made.

How to get rid of PAYE?

Closing your PAYE scheme

You should: deduct and pay any outstanding tax and National Insurance to HMRC within 17 days (or 14 if you're paying by cheque) select the 'Final submission because scheme ceased' box. put the date you closed your PAYE scheme in the 'Date scheme ceased' box - you cannot put a date in the future.

How much tax will I pay on 1257L?

With a 1257L tax code, you get a standard £12,570 personal allowance, meaning your first £12,570 of income is tax-free, and the rest is taxed at basic (20%), higher (40%), or additional (45%) rates depending on your total earnings, with Scottish rates differing. You'll pay 20% on income between £12,570 and £50,270, 40% up to £125,140, and 45% above that, calculated cumulatively across the year.

Do I have to do a tax return if I PAYE?

Most taxpayers in the UK pay tax using Pay as You Earn (PAYE). This means their Income Tax is taken when they get paid by their employers or pension providers. They don't need to do anything else. If you have income that isn't taxed with PAYE, then you might need to complete a tax return.

How long to keep PAYE?

For PAYE purposes, it is sufficient that you retain your records for the current and three previous tax years. Records for 2025/26 should therefore be kept until at least 5th April 2029. Since 1 April 2021, minimum wage records must be retained for a minimum of six years (the previous requirement was three years).

Are PAYE refunds automatic?

HMRC used to issue many repayments automatically. However, with effect from 31 May 2024, HMRC are no longer issuing all repayments automatically. Instead, if your P800 calculation shows that you are due a tax refund, you will probably have to actively claim the refund in order to receive it.

Why do I owe tax if I'm on PAYE?

The underpayment could have arisen due to your employer or pension payer not operating PAYE correctly. This could happen in a number of ways, for example: your employer may not have applied a tax code that HMRC sent to them, or.

What are the disadvantages of PAYE?

Cash Flow Issues for Employees: As a significant portion of employee's paycheck is getting deducted so many employees can face cash flow issues. It adversely affect their monthly budgeting. Burden for Employers: Managing PAYE system for every employee creates an extra burden on employers.

What are common PAYE mistakes?

Common payroll mistakes include late tax filings, misclassifying workers, incorrect payment amounts, and inadequate record-keeping. You can avoid these errors by staying informed on payroll laws, double-checking data, using reliable payroll software, and maintaining accurate employee records.

Why is my PAYE so high?

If you are paid through PAYE, your payslip deductions can change due to factors like an emergency tax code, an incorrect code, or because your personal allowance is not being applied properly.

Can I opt out of PAYE?

Opting out of PAYE is indeed a choice available to employees, this not being a mandatory requirement. The responsibility of enrolling individuals in PAYE lies with employers, leading to varying implications depending on whether one is an employer or an employee.

What is the 4 year rule for HMRC?

The HMRC 4-year rule generally means you have four years from the end of the relevant tax year to claim a refund for overpaid tax or for HMRC to issue a discovery assessment for underpaid tax due to a genuine mistake. This limit extends to six years for "careless" errors and 20 years for "deliberate" actions, with longer periods applicable for offshore matters (12 years) or specific non-domicile regimes. The rule applies across most taxes, but timeframes vary depending on the reason for the error.
 

Does everyone need to pay PAYE?

Employers in the UK must operate PAYE under the law if they have at least one employee whom they pay more than a certain amount of money (£125 per week in 2025/26). Your employer should operate PAYE on all cash earnings, such as salary, overtime and bonuses.

What's the longest you can go without paying taxes?

No Statute of Limitations for Unfiled Returns

The IRS does not apply a statute of limitations to unfiled tax returns. The clock that limits how long the IRS can assess tax or pursue collection does not start until a tax return is actually filed.

Why am I getting PAYE tax when I don't earn enough?

The way PAYE works means that you may have income tax deducted from your wages throughout the year, even if overall you earn less than the personal allowance. You can usually get any PAYE overpaid throughout the year back, as a tax refund.

Will I get PAYE tax back?

Yes, you can get PAYE tax back as a refund (rebate) if you've paid too much, usually because of an incorrect tax code, having multiple jobs, starting or stopping work mid-year, or having work-related expenses like uniforms or travel; you typically claim it from HMRC online or by post, often after they send a P800 form. 

Do I have to pay back my employer if I am overpaid?

The employer will typically suggest that you repay the overpayment in instalments or as a lump sum. Once you have agreed to repay the amount, a written agreement with the following terms should be drafted: Reason for overpayment. Amount overpaid.

What is the easiest way to get your tax refund?

Choose how to get your refund

Direct deposit: This is the fastest way to get your refund. Deposit into your checking, savings, or retirement account. You can split your refund into up to 3 accounts. Paper check: We'll mail your check to the address on your return.