PAYE (Pay As You Earn)
is the UK and Irish system of withholding income tax (and UK National Insurance) from wages through payroll: the employer deducts per the employee’s tax code, reports in real time (RTI in the UK), and remits to HMRC or Revenue. Employees on PAYE mostly avoid annual filing.
How PAYE runs — and where employers slip
Each pay run applies the current tax code, cumulative to date, plus National Insurance; RTI submissions go to HMRC on or before payday, and remittance follows monthly. Codes change with benefits, second jobs and adjustments — applying stale codes is the routine error.
PAYE is also the enforcement lever in contingent labour: inside-IR35 fees and umbrella wages must run through it, and from April 2026 agencies carry responsibility for umbrella workers’ PAYE. Guidance: gov.uk.
Related terms: IR35, National Insurance
FAQ
Do foreign employers need UK PAYE for one UK employee?
Usually yes: an employee working in the UK generally triggers a PAYE scheme even without a UK entity, with limited relaxations where the employer has no UK presence. Many foreign companies use an EOR instead, which employs the person and runs PAYE as standard.
What happens if PAYE is operated late or wrong?
Interest and penalties on late remittance, plus liability for under-deductions — the employer answers first, and recovering from employees afterwards is restricted. RTI makes gaps visible quickly, so corrections are best filed proactively.