What is PAYE (Pay As You Earn)?
PAYE stands for Pay As You Earn and refers to HMRC's system of collecting income tax and national social security contributions from wages. If you are an employer or employee, PAYE affects how you collect or pay taxes.
It was first introduced in 1944. By using the PAYE method the money is transferred to HMRC by your employer 'at source' which means directly from your salary before it is transferred to your account. National insurance and loan payments can also be deducted in this manner.
Another method of paying tax on income is self-assessment in which individuals file self-assessment tax returns and typically pay tax every year, either once or twice.
Who Pays PAYE?
Most people pay income tax through PAYE. It is the system that your employer or pension provider uses to collect income tax and social security contributions before they pay your salary or pension. Your tax code tells your employer how much to withhold.
How Does PAYE Work?
Employers administer PAYE as part of their pay and deduct tax, and NI before paying an employee their wages. Other deductions, such as pension contributions or student loan repayments, can also be processed via a payslip.
Employers notify HMRC of all awards and deductions using the payroll software to submit full payment (FPS). The information is used to calculate the employer's PAYE bill so that they can pay the deductions to HMRC.
Employers and pension providers follow procedures to run PAYE which allow them to apply tax codes when paying you. It is crucial to confirm that your pension provider/employer has informed HMRC of your earnings. If you begin receiving new incomes, you can expect to receive an updated PAYE code notice from HMRC. If you don't receive one, we recommend that you contact HMRC and request one.
HMRC will calculate a tax code for you, and send you a PAYE coding notice, they will show you the method they used to calculate the tax code for you. If the HMRC will not issue a PAYE coding notice, you may still request one.
Inform your pension provider or employer of the tax code you have. Your pension provider or employer is then able to use that tax code to determine the amount of tax they will take from your weekly or monthly salary or retirement. They typically pay the tax in full to HMRC. You can also check your tax code as well as how it was computed on the HMRC website via your individual account
If someone else (such as an accountant!) processes the payslips on behalf of the employer, he/she will send the ACC on his/her behalf and then let the employer know how much PAY he/she owes.
Payslips
If you're employed, you will receive an income tax return every time you get paid. It could include the tax code that your employer used to calculate the tax deduction from your pay.
If you're receiving pension benefits, you typically don't receive a payslip with every pension payment. However, you will receive some kind of notice when there is a change in the amount of your pension. For example, your tax code has changed.
PAYE Tax Year
A PAYE tax year begins on 6th April and ends on 5th April in the following year. There is a deadline of four years to allow you to claim any overpaid income tax. It is therefore important to be aware of when the tax year ends and begins so that you aren't late for the deadline.
When the Tax Year End
As long as you're employed or receive pension benefits on or before 5 April, which is the date of the close of your tax year. Your pension provider or employer will provide you with an "end of calendar year' certificate on or before May 31. It will detail your salary or pension as well as the tax you paid and, in most cases, the tax code that is finalized. The pension provider or employer will provide the same information to HMRC.
What is My PAYE Number?
When you register as an employer, HMRC sends a welcome packet to the employer with your PAYE reference number. If you lose it, you can also find it in letters or emails about PAYE from HMRC. It also appears on all P45s or P60s for past or present employees.
How Do I Register as an Employer for PAYE?
You apply for PAYE (Pay As You Earn) when you register as an employer with HMRC. You must register before hiring staff or subcontractors for the first time!
HMRC Obligations and PAYE
If you are in debt to tax, HMRC could take money from your paycheck to pay the tax you owe. They could do this by altering the tax code of your account so that you pay tax more every month. The tax code has a limitation on the amount of tax that you can claim.
● If you are not earning more than £30,000 then, the maximum amount HMRC can take is £3000 per tax year.
● The maximum amount HMRC can take is £17,000 per tax year but only if you are earning more than £90,000
Why is PAYE Withheld?
PAYE essentially allows employees to pay tax and NI of their pay in instalments instead of receiving a scary tax bill at the end of each year. The rates are calculated on the basis of an employee's estimated income during a financial year, taking into account his personal allowances.
Tax Code and PAYE
The tax code you use for PAYE is very important as it allows your source of income to know the amount of tax your employer can take from your earnings. The tax department in the UK notifies your employer of your tax code at the end of each tax year or when there is an alteration in your tax code.
Are You Eligible for a Tax Rebate for PAYE?
Tax-paying through PAYE doesn't mean you can't pay excessive taxes, therefore don't think everything is in order or you could be paying correctly for it. Every year, hundreds of UK taxpayers overpay their income tax due to PAYE. There are a variety of reasons you may have overpaid tax and you could be eligible for a tax refund under PAYE. The main reasons for paying too much tax are:
● You are a UK non-resident for tax purposes.
● Not claiming back tax relief on expenses you have because of your job.
● Having an incorrect tax code.
It is your obligation to make sure that you have not paid too much tax. If you paid too much, you'll claim any tax that you have overpaid directly from the tax office.
What are the Ways to Claim Your PAYE Tax Rebate?
Pro Tax Accountant
We provide an excellent value tax refund service that will provide you with professional assistance and guarantee that you get all the tax rebates you are qualified for. PTA makes claims simple and eliminates all headaches.
Do It Yourself
If you contact the tax office on your own, you will not be charged, but it is important to understand the amount you want to claim. Making a PAYE Tax refund request could be time-consuming and difficult.
Your P60 and PAYE
Each financial calendar year (5 April) You will get an official statement, referred to as P60, from your pension provider or employer which will show the total amount of money that you've paid, how much tax was deducted and how much net earnings you've earned after this.
If you are employed by several employers then each one of them should mail you a P60 Annual Certificate of End-of-Year.
Examine all P60s you've received to confirm that you've paid the exact amount. If you believe you have paid too much tax Check the income tax checker of HMRC service and then contact them to correct your tax record.
Forms for PAYE
If you are employed the most common forms you are given are:
● P60: At the end of every tax year, it will show your total earnings as well as the amount of tax you paid.
● P45: in the event that you decide to leave your job
● P11d: for those who have a benefit from their employer like a health insurance scheme
Most forms that are part of PAYE are given to you by your employer.