01: Introduction

Pay As You Earn (PAYE) is HM Revenue and Customs’ (HMRC) biggest earner. Over 80% of all income tax and most national insurance contributions (NIC) are paid under PAYE so HMRC is keen to make sure that employers are paying the right amounts. Unfortunately the PAYE rules have become increasingly complex.

HMRC tries to visit employers every few years to check their PAYE compliance. Mistakes can be costly as it can impose heavy penalties for failure to pay the correct amount of tax and NIC at the right time. HMRC also has the right to review returns and payments for the previous six years (and sometimes further back) and assess unpaid tax and NIC.

Employers must always operate PAYE. You must calculate, deduct and pay over the correct amounts of tax and NIC due on payments to your employees, comply with certain procedures and make all the required returns. PAYE applies only to employees. It does not cover self-employed people, who have to assess their own tax.
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