Salary FYI

PAYE (Pay As You Earn)

Tax

A tax withholding system used primarily in the UK, Ireland, and several Commonwealth countries, where the employer deducts income tax from each paycheck before paying the employee.

## PAYE (Pay As You Earn)

PAYE is the UK's income tax withholding system. HMRC provides employers with a tax code for each employee, which determines the correct amount of tax to deduct from each pay period.

### How It Works

1. HMRC assigns a tax code (e.g., 1257L = £12,570 Personal Allowance).
2. The employer calculates tax on each payslip using the code and cumulative method.
3. Tax is deducted and remitted to HMRC monthly.
4. For most employees, PAYE results in the correct annual tax with no need to file.

### Countries Using PAYE

UK, Ireland, New Zealand, South Africa, Nigeria, Kenya, and many other Commonwealth nations use PAYE or similar systems.

### PAYE vs. US Withholding

PAYE is more precise than US withholding because it uses cumulative calculations and individual tax codes. The result is that most UK employees never need to file a Self Assessment return, while nearly all US employees must file Form 1040.