What is PAYE?
The majority of employees in the UK pay tax via a Pay As You Earn (PAYE) scheme. PAYE involves employers deducting personal tax from their employees’ salaries. It is the responsibility of every business which employs staff to calculate PAYE, deduct tax and pass it on to HM Revenue & Customs (HMRC).
How & when must I pay PAYE?
So long as you have less than 250 employees, payments can be made online, by direct debit, by BACS or CHAPS, by cheque, bank giro or in cash at your local Post Office.
Tax deductions must be paid to HMRC either monthly or quarterly, depending on the combined total of NI and PAYE payments – if the total averages more than £1,500 per month then payments must be made monthly. HMRC must receive payments within 14 days of the end of each tax month or quarter – so the 19th of each month.
HMRC recently took the decision to charge interest on late payments of PAYE and if you are late paying, it will affect your reputation and may cause you issues in the future.
How much should I deduct?
Everybody has a ‘personal allowance’. This means that everyone can earn a certain amount of tax free income each year. This amount is set each year by The Chancellor in the Budget.
The amount of tax to be paid on earnings over the personal allowance increases in bands starting at 20% and increasing to up to 45%. You can check the current rates and allowances here.
The amount you, as an employer, deduct is determined by the employees PAYE code which is provided by the Inland Revenue. You must deduct tax according to this code even if it is wrong.
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