Pay As You Earn (PAYE) is the mechanism by which HMRC collects income tax and National Insurance Contributions (NICs) from employment income at source. Every employer engaging workers on a contract of employment must register a PAYE scheme with HMRC before making the first payment of wages or salary. The employer calculates each employee's deductions using the tax code issued by HMRC, which reflects personal allowances, benefits in kind, and any underpaid tax from prior years.
Employers pay deducted income tax, employee NICs, and employer NICs to HMRC by the 19th of the month following the relevant pay period (or 22nd for electronic payment). Real Time Information (RTI) requires a Full Payment Submission (FPS) to be filed on or before each pay date, reporting gross pay, deductions, and year-to-date figures for every employee. Late or missing FPS submissions attract automatic penalties.
Beyond salaries, PAYE applies to bonuses, commission, most taxable benefits, and statutory payments such as Statutory Sick Pay. Employers operating umbrella arrangements or agency payrolls must equally operate PAYE; the obligation cannot be contracted out to the worker. At year end, employers must submit a final FPS or Employer Payment Summary (EPS) marked as the last submission, after which P60s are issued to all employees still in employment on 5 April.