PAYE
PAYE (Pay As You-Earn) is an amount collected by employers on behalf of the government from employees. This is, in effect, a provisional payment of tax on the employee's income. The amount withheld is determined partly by the employee's expected tax allowances, exemptions and reliefs, and partly by tax tables that determine the amount of tax to be deducted for the salary or wage paid to the employee.
Wages includes sick pay and maternity pay. This means that you pay tax over the whole year, each time you are paid. Your employer is responsible for sending the tax on to HM Revenue and Customs (HMRC). If you pay tax on your wages or occupational pension under PAYE, the PAYE system can also be used to collect the income tax of any other taxable income you have. For example, if you pay tax under PAYE on an occupational pension, the tax due on your state retirement pension is collected through PAYE by deducting tax from your occupational pension.
Individual countries may apply the principle of PAYE differently to suit their own policy objectives. PAYE as a system is also used to collect national insurance and or medical insurance contributions plus other social security contributions. The tax collected during the year may be enough to discharge the taxpayer's liability for tax, making a tax return redundant. However, if the taxpayer's affairs are complicated, a tax return may be required to determine the amount of tax payable or refundable.
PAYE is, in effect, a withholding tax administered separately by the tax authority. As the tax collector is a fact of life, all forms of income attract their attention, and administrative arrangements are put in place to allow for the smooth payment and collection of taxes.
