Introduction to Income Tax and NICs Pay As You Earn and income tax
Pay As You Earn and income tax
5.1
What is PAYE?
Pay As You Earn (PAYE) is not a tax. It is in fact a sophisticated system for collecting income tax at source from earnings and pension payments.
An underpinning concept of PAYE is that employees should have the correct amount of tax deducted from their earnings (and pension) payments during the tax year. Ideally, this should mean that at the end of the tax year no employees will be required to complete a tax return in order to calculate and pay any further income tax to HM Revenue & Customs (HMRC). (However, some ten million or so taxpayers, many of which have other sources of income, have to complete an annual tax return.)
PAYE is a simple concept, but it places certain duties on employers and requires them to use an extensive range of forms and follow complex procedures.
5.1.1 Operating PAYE
All employers are required to operate PAYE for every employee, irrespective of whether they are part- time or ‘casual’ workers, students or school leavers.
However, there are circumstances in which income tax is not deductible from some employees, and some reduced recording requirements may apply, but this does not alter the employer’s duty to operate PAYE.
5.2
Tax year and tax calendar
The tax year runs from 6 April of one year to 5 April of the following year.
For the purposes of calculating income tax under PAYE, the tax year is split into tax periods comprising:
Tax weeks The first tax week of the tax year runs from 6 April to 12 April, the second from 13 April to 19 April, and so on. Typically, there are 52 tax weeks in the tax year, although it is possible for there to be 53 tax weeks. Tax months The first tax month starts on 6 April of one month and ends on 5 May, the second starts on 6 May and ends on 5 June, and so on.
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