03: Tax calculations

The basis for calculating tax under PAYE is the employee’s tax code. The code normally governs how much of the employee’s pay is free of tax. However if the code begins with the letter K, it increases the amount of taxable pay in order to collect additional tax, for example on benefits in kind.

The employer must use the issued tax code. You cannot change an employee’s code unless HMRC says so.

You can use HMRC tax and NIC tables to calculate the deductions or there are several computer packages that can do this for you. There are monthly and weekly tables, depending on how often you pay your employees.

Each tax month ends on the 5th; for example month 1 is the period from 6 April to 5 May. PAYE tax and NIC must normally be paid to HMRC by the 19th following the month end or the 22nd if you pay electronically. Very small employers can pay quarterly.