Understanding PAYE

Understanding PAYE: A Beginner’s Guide to How You’re Taxed in the UK

If you’re starting a new job or reviewing your payslip, understanding PAYE can feel overwhelming. But it doesn’t have to be. Here’s what you need to know to feel confident about your income and deductions.

Frequently Asked Questions

What is PAYE?

PAYE stands for Pay As You Earn. It’s the system HMRC uses to collect income tax and National Insurance contributions from employees’ wages directly before the money hits your account.

What does my payslip show?

Your payslip usually includes:

• Gross pay (before tax)
• Income tax (PAYE)
• National Insurance (NI)
• Student loan or pension contributions (if applicable)
• Net pay (your take-home pay)

How is tax calculated through PAYE?

HMRC assigns you a tax code (e.g. 1257L) that tells your employer how much tax-free income you’re entitled to each year. The rest is taxed based on income thresholds.

Can PAYE go wrong?

Yes. If your tax code is incorrect, you may overpay or underpay tax. This often happens when you have more than one job or have recently changed roles.

What if I think I’ve paid too much tax?

You can claim a tax refund through HMRC’s website. You’ll need your P60 or payslips to support your claim.