Pay-as-you-earn Tax - United Kingdom

United Kingdom

PAYE is required in the United Kingdom on all payments of salary or other compensation. PAYE applies only if the compensation is expected to reach National Insurance Lower Income Level (£8,105 per year for 2012–2013). The amount of PAYE is determined by the employer based on the tax code and National Insurance category. The tax code is determined by HM Revenue and Customs (HMRC) based on the employee's expected tax allowances, exemptions and reliefs for the full tax year, and partly by the employee's expected other income. Published tables apply the tax code to determine the amount of tax to be deducted from the salary or wage paid to the employee. The employer is responsible for sending the tax on to HMRC each month.

PAYE is applied to sick pay, maternity pay, directors' fees and pensions (but not the state pension), as well as wages and salaries. Because the tax code reflects other income (including the state pension), the PAYE system typically results in the correct amount of tax being paid on all the income of a taxpayer, making a tax return redundant. However, if the taxpayer's affairs are complicated, a tax return may be required to determine the amount of tax payable or refundable.