PAYE WHAT DOES IT MEAN

The Pay As You Earn system, often shortened to PAYE, is basically a process put in place that allows us to pay our Income Tax and National Insurance.

Your salary will be made up of Wage payments made to you which include sick pay, maternity or paternity pay and adoption pay. You pay tax over the whole year, each time you are paid, rather than paying tax in one lump sum. Your employer is responsible for calculating and sending the tax you owe on to HM Revenue and Customs (HMRC). Each pay day you will get a pay slip setting out your pay, tax and national insurance contributions and any other deductions from your pay. If you get a pension, you may not get a payslip for every payment.

At the end of the tax year, you will receive a P60 form which sets out the total amounts paid to and deducted from you for the previous tax year. A tax year runs from 6 April one year to 5 April the following year. Where you have more than one employer, or more than one pension provider, each one should send you a separate P60 End of Year Certificate.

MEDIAN WEEKLY EARNINGS

FOR PAYE FULL-TIME EMPLOYEES

Increased by 2.9% in 2019 but in real terms are lower than a decade ago

Correct as of April 2019

Median Weekly Earnings PAYE full-time employees 2019

GENDER PAY GAP

FOR PAYE EMPLOYEES

The median gross hourly earnings pay gap (excluding overtime)

Correct as of April 2019

PAYE Gender pay gap PAYE employees 2019
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PAYE HOW IS IT CALCULATED

Your take-home wage will be calculated based on your agreed yearly salary (divided by your pay frequency; daily/weekly/monthly, etc) minus any or all of the following:

Income Tax

The amount of Income Tax you pay is based on how much you earn and whether you're eligible for the personal allowance. This allowance is the amount you're able to earn tax-free each year. In 2020-21 the amount is £12,500 (the same as in 2019-20).

Above the personal allowance, you'll be charged at either 20%, 40% or 45% depending on whether you're a basic rate, higher rate or additional rate tax payer. This rate is determined by the salary you are on.

National Insurance

National Insurance has to be paid by both PAYE and Self-Employed workers. The amount of the contribution depends on your employment status and how much you earn. Not everybody has to pay National Insurance, but contributions count towards your state pension and other benefits, as a PAYE employed person you'll pay Class 1 National Insurance.

National Insurance is calculated on gross earnings (before tax or pension deductions) above an 'earnings threshold'. For 2020-21, the Class 1 threshold is £9,500 a year .

If you earn more, you'll pay 12% of your earnings between £9,500 and £50,000. You'll pay 2% on any earnings above £50,000.

Pension Deductions

These contributions are taken out of your pay 'at source', and therefore you do not pay tax on them.

This will include any payments into your employer's pension scheme (including any voluntary contributions) or payments to a personal pension provider.

Student Loan Repayment

You’ll be on either Plan 1 or Plan 2, depending on when you went to university. Repayments are worked out as 9% of your income above the threshold, rounded down to the nearest pound.

Plan 1: If you started university before 1 September 2012, you’ll start making student loan repayments once you’re earning £18,935 a year (or £1,578 a month). This threshold tends to increase at the start of every new tax year.

Plan 2: If you started university in England or Wales after 1 September 2012, the student loan repayment threshold currently stands at £ £25,725 a year (or £2,144 a month).

Other Deductions

These deductions could include but not be limited to, subscriptions to a trade union, child maintenance payments or debt repayment.

CHANGE IN CIRCUMSTANCE

If your circumstances change during the tax year, for example, a new source of income, you must inform HMRC in writing as soon as possible.

For more information about different changes in circumstances, see PAYE: common problems.

PAYE AND YOUR P60

At the end of each tax year (5 April) you will receive a statement called a P60, from your employer or pension provider. This will show the gross total amount of money you've been paid and what tax has been deducted. Giving you the net income you have taken home after this.

If you have more than one employer/pension provider, you will receieve a separate P60 End of Year Certificate from each.


MEDIAN GROSS WEEKLY EARNINGS

FOR PAYE FULL-TIME EMPLOYEES

Correct as of April 2019

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