The Pay As You Earn (PAYE) system is a method of collecting income tax at source from employment income, pensions and taxable state benefits. Employed earners and their employers must also pay National Insurance Contributions (NIC).
The aim of the PAYE system is to ensure that the correct amount of tax is deducted from each individual’s income according to their personal circumstances and paid to Her Majesty’s Revenue and Customs (HMRC) at regular intervals.
The administrative burden is placed on the employer who has four main obligations:
The tax year runs from the 6th April to the 5th April the following year. Most employees are paid either weekly or monthly and therefore the tax year is divided into tax weeks and months starting on the 6th April. Tax months therefore end on the 5th day of each calendar month. A tax year contains 52 weeks but, as a calendar year has 52 weeks and an extra day or two in a leap year, employees can be paid during tax week 53 for which there are special rules.