What is PAYE ?

The Pay As You Earn (PAYE) is the method used for paying insurance contributions and income tax where the employer can deduct the contributions before paying the wages. It is the money taken away from the wages to pay taxes. 

The system allows the employee to deduct the tax and NI and send it to HMRC. For the years 2019-2020, the basic personal allowance is up to £12,500, where you pay 0 per cent tax. 

On earnings above £12,500 to £50,000, the rate is 20%, and a 40% is deduction is allowed for earnings in the range of £50,001 to £150,000. Above this range, the tax percentage is 45%.

A tax code is used by the pension provider or the employer to get the amount of tax to be paid, and the employer files a PAYE reference number of each business that registers with the HMRC, which is a unique set of numbers and letters used by the taxman to identify the firm. 

This number is made in two parts with three digital HMRC office numbers and a reference number, which is unique to the business.