What is PAYE?

The Pay as You Earn system is a vital tool for an employer’s payroll department when carrying out payroll-related tasks. Let’s discuss what it is and how it’s used.

PAYE (which stands for Pay As You Earn) is HM Revenue & Customs’ (HMRC) tax collection system. They use it to collect income tax and National Insurance contributions from every employee and pensioner. Like the name suggests, taxes are deducted from your income as you earn based on your tax code. The process involves 3 parties: HMRC, your employer (umbrella company) or pension provider and yourself. After HMRC calculate a tax code for you, your umbrella company or employer makes the necessary deductions based on the tax code and how much they wish to charge you for their services. The amount of money that remains after these deductions is most commonly known as Take Home Pay.