What Is PAYE Tax?

PAYE means you don't need to file a tax return for most employment income – it's all handled automatically. Your employer calculates how much tax and National Insurance you should pay based on your earnings and your tax code, then deducts it from your pay before you receive it.

How PAYE works

Automatic deduction

Your employer deducts income tax and National Insurance from your pay each pay period (weekly, fortnightly, or monthly). The amount deducted is based on your earnings in that period and your tax code, which tells your employer how much tax-free income you're entitled to.

Tax code

Your tax code determines how much tax-free income you can earn before paying tax. HMRC sends your tax code to your employer, who uses it to calculate how much tax to deduct. The standard tax code is 1257L, which gives you the full Personal Allowance.

Spreading tax across the year

PAYE spreads your tax liability across the year, so you pay roughly the same amount each month. This is calculated based on your expected annual income, so if your income changes significantly (for example, if you get a pay rise or bonus), your tax may be adjusted to ensure you pay the correct amount for the full tax year.

Sent directly to HMRC

Your employer sends the tax and National Insurance they've deducted directly to HMRC. You don't need to do anything – it's all handled automatically through the PAYE system.

What PAYE covers

• Income tax on your salary, bonuses, and commission
• National Insurance contributions
• Student loan repayments (if applicable)
• Pension contributions (if deducted before tax)

What you need to know

PAYE is designed to ensure you pay the right amount of tax throughout the year. If you overpay tax (for example, if you're on an emergency tax code that's later corrected), you'll usually get a refund automatically. If you underpay tax, HMRC will usually adjust your tax code to collect it gradually.

Your payslip shows you exactly how much tax and National Insurance has been deducted through PAYE. You can check your tax code on your payslip – if it's wrong, contact HMRC or check your personal tax account online.

If you're self-employed or have income from other sources (like rental income or investments), you may need to complete a Self Assessment tax return in addition to PAYE. PAYE only covers employment income.

What you can do

Check your payslip regularly to make sure your tax code is correct and that the right amount of tax is being deducted. If something looks wrong, check with your employer or HMRC.

Use our tax calculator to estimate how much tax you should be paying based on your income. This helps you understand if your PAYE deductions are correct.

Keep your payslips and P60 forms – these show your total income and tax paid for the year, which you may need for tax returns or other purposes.

Related guides

For more information about UK tax and how it's calculated, see our UK Tax Guide. If you want to understand tax codes, read our guide on emergency tax or what BR tax code means.