PAYE explained: a practical guide for UK employers
PAYE compliance is not only payroll processing; it is the control system for tax codes, employee changes, RTI submissions and HMRC payments.
PAYE (Pay As You Earn) is the system employers use to deduct Income Tax and National Insurance from employee pay. GOV.UK explains that PAYE Online lets employers check what they owe, pay bills, access employee tax codes and notices, and receive alerts about late reporting or payment. HMRC PAYE Online guidance.
PAYE and tax codes
HMRC tells employers which employee tax code to use. The code is entered into payroll software to work out how much tax to deduct from pay. HMRC employer tax code guidance.
Why PAYE errors happen
Common errors arise when new starters, leavers, benefits, bonuses, pension changes and tax code notices are not processed promptly. The payroll may run correctly mathematically while still using outdated inputs.
Practical PAYE controls
- Download and apply HMRC tax code notices promptly.
- Reconcile payroll journals to payments and HMRC liabilities.
- Check starters and leavers before each payroll.
- Review benefits and expenses reporting obligations.
- Keep evidence of payroll approvals.
Frequently asked questions
Clear answers to common questions on this topic.
What is PAYE?
PAYE (Pay As You Earn) is the system employers use to deduct tax and National Insurance through payroll.
Who tells employers which tax code to use?
HMRC tells employers which tax code to use for each employee.
Where can employers access PAYE notices?
Employers can use PAYE Online to access tax codes and notices about employees.
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