Definition
The HMRC system through which employers deduct income tax and National Insurance contributions from employees' wages before paying them. PAYE operates in real time, with employers reporting payments electronically each pay period.
UK Context
PAYE was introduced in 1944 and is governed by the Income Tax (Earnings and Pensions) Act 2003 and the Income Tax (Pay As You Earn) Regulations 2003. Since 2013, employers must submit Real Time Information (RTI) to HMRC on or before each pay date. Late or inaccurate filings can attract penalties.
Best Practices
- Submit Full Payment Submissions (FPS) to HMRC on or before each pay date
- Apply tax code changes from HMRC promptly and keep records of all code notices
- File an Employer Payment Summary (EPS) by the 19th of the following month if claiming reductions
Frequently Asked Questions
What is Real Time Information (RTI)?
RTI is the system through which employers report payroll information to HMRC electronically each time they pay employees, rather than at the end of the year. It includes Full Payment Submissions and Employer Payment Summaries.
What penalties apply for late PAYE submissions?
HMRC charges penalties for late FPS filings based on the number of employees. There is a one-month grace period in each tax year. After that, monthly penalties range from 100 to 400 pounds depending on employer size.