Introduction:
Whether you work or run a business in the UK, you've probably heard of PAYE. But what is it exactly? How does it work?
In this article, we'll tell you everything you need to know about PAYE in the UK, including important terms and facts.
What is PAYE in the UK?
PAYE stands for Pay As You Earn, a system used to collect income tax and NICs (National Insurance contributions) from employees.
Before paying their employees, employers deduct taxes and contributions from their pay.
Employers must register with HM Revenue & Customs (HMRC) and get a PAYE reference number.
HMRC gives each worker a tax code that is used to figure out how much tax and contributions should be taken out of their pay.
Employees receive a P60 form from their employer at the end of each tax year detailing the amount of tax and National Insurance that they have contributed that year.
How does PAYE work?
Employers figure out how much tax and National Insurance to deduct from an employee's pay by looking at their tax code and how much they make.
The tax and National Insurance are deducted from the employee's pay and then sent to HMRC by the employer.
Each year, HMRC updates the employee's tax account and provides the employee with a tax computation.
If the employee paid too much tax, they can get their money refunded. If they haven't paid enough tax, they may have to pay more.
Related Terms:
National Insurance Contributions (NICs): Payments made by employees and businesses to finance state services and benefits, such as the National Health Service and state pensions.
Tax Code: A series of letters and numbers that tells employers how much tax and National Insurance to take out of an employee's pay.
Full Payment Submission (FPS): It is a report that employers send to HMRC every time they pay their workers. It includes information about how much tax and National Insurance was taken out.
Tax Year: The time period from April 6 to April 5 of the next year, which is used to figure out income tax and National Insurance payments.
Conclusion:
PAYE is a very important system in the UK that is used by both employers and employees to collect income tax and National Insurance contributions.
By knowing how it works and what the terms mean, you can make sure you pay the right amount of tax and contributions and avoid getting fined or getting in trouble.
Don't Worry...we got you covered!!!
Our Team of experts are always happy to help you with anything and everything related to PAYE. You might be an Employer, employee or payroll manager, feel free to get in touch.
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