What is PAYE?

Wondering how to make sense of your payslip each month? You may see chunks of your money being zapped by NI and tax, but what is PAYE? Here we show you how to claim tax back via PAYE for a PAYE Tax Rebate.

What is PAYE?

PAYE, or pay as you earn, is the HM Revenue & Customs (HMRC) system to deduct tax from employees or people receiving income from other sources, such as a pension.

PAYE tax is collected by an employer and sent to the tax office weekly or monthly, depending on the agreed payment arrangement. How much tax an employee needs to pay is determined by the tax code given upon starting employment.

Any income tax is deducted from an employee’s wages or other income immediately before the net income is paid to them.

PAYE and your tax code

An employee needs to get the correct PAYE tax code as it determines how much tax will be deducted from their earnings.

It is the tax office’s responsibility to inform your employer annually what your tax code is every time there is a change in your circumstances.

A tax code usually consists of 3 or 4 numbers and one letter, such as 163L, and is indicated on an employee’s payslip. Those numbers indicate your Personal Allowance or the amount of tax-free money you can enjoy before you start paying taxes.

When you are assigned the wrong tax code, that may result in underpaying or overpaying taxes.

Find out if you’re on the correct tax code… what is emergency tax? 

Are you due a PAYE tax rebate?

As previously mentioned, there are cases when you end up paying too much or too little tax, even under PAYE. You must find out how to spare yourself from possible repercussions that will cost you hundreds or thousands.

You may end up paying too much tax if you have the wrong tax code, did not claim tax relief on job expenses, or is not a UK resident for tax purposes.
If you overpay tax, you will be eligible for a PAYE tax rebate that you can claim.

The PAYE tax year

It starts on the 6th of April and ends on the 5th of April of the following year. Make it a point to remember the start and end of the PAYE tax year so you can file your return on time and not miss the deadline.
If you are up for a tax rebate, you can claim up to 4 tax years of overpayment of income.

PAYE forms

You will be given several forms related to PAYE tax that you can use to claim a rebate or other purposes.
• P60 will show your total earnings and tax paid and will be given to you at the end of each tax year. (Why is your P60 important?)
• P45 will show you how much income tax you’ve paid so far within the tax year. This will be given to you when you leave your job.
• P11 will show non-cash taxable benefits like a health scheme.

HMRC debts and PAYE

If you owe HMRC tax, your tax code will change so you can pay more monthly tax and clear your debt. But there is a limit to how much HMRC can claim.

If you’re earning less than £30,000, the maximum amount the tax office can collect per tax year is 10% or £3,000. But if you earn over £30,000, the full amount claimed will depend on how much you earn over that amount. The tax office can collect a maximum of £17,000 annually if you earn £90,000 or over.

Ways to claim your PAYE tax rebate

There are two ways to claim your PAYE tax rebate – using tax rebate services or doing it yourself (DIY). Between the two, the former would work to your advantage since you can access professional support and advice. You’re also guaranteed a maximum income tax rebate if you have overpaid.


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