PAYE stands for Pay As You Earn. It is the UK payroll system where employers deduct Income Tax from wages before paying employees, so tax is collected throughout the year rather than paid in one lump sum.
How PAYE works
When you are paid through payroll, your employer starts with your gross pay. Payroll then uses your tax code, taxable pay and the relevant tax bands to calculate how much Income Tax to deduct.
The PAYE deduction is taken before your net pay is sent to your bank account. This is why your monthly take-home pay is usually lower than your gross monthly salary.
gross pay
- PAYE Income Tax
- National Insurance
- pension and other deductions
= net pay
Is PAYE the same as Income Tax?
PAYE is not a separate tax. It is the system used to collect Income Tax from employment income. On a payslip, PAYE may appear as “Tax”, “PAYE”, “Income Tax” or similar wording.
Income Tax
The tax charged on taxable income once allowances and bands have been applied.
PAYE
The payroll method used to collect Income Tax from employee wages before payment.
PAYE and National Insurance
PAYE Income Tax and National Insurance often appear near each other on payslips, but they are separate deductions.
Income Tax depends on taxable income, allowances, tax code and tax bands. Employee National Insurance uses NI categories, thresholds and rates. Both reduce take-home pay, but they are calculated differently.
| Deduction | What it is | Where it appears |
|---|---|---|
| PAYE / Income Tax | Income Tax collected from wages. | Payslip tax deduction section. |
| National Insurance | Employee NI contributions based on earnings and NI category. | Payslip deductions section. |
Need the full PAYE and NI explanation?
Read the guide that explains how both deductions affect salary.
Why your tax code matters for PAYE
Your tax code tells payroll how much tax-free pay to apply before Income Tax is deducted. If the tax code changes, PAYE deductions can change even if your salary stays the same.
A tax code can be affected by the standard Personal Allowance, employment benefits, underpaid tax, multiple jobs, pension income or HMRC adjustments.
Tip: if your PAYE deduction suddenly changes, check your tax code, bonus payments, pension changes and any new taxable benefits.
Examples of PAYE on a payslip
PAYE may appear under slightly different labels depending on your employer’s payroll system.
- “PAYE tax”
- “Income Tax”
- “Tax deducted”
- “Tax this period”
- “Tax year to date”
If your gross monthly pay is £3,000 and payroll deducts £350 of Income Tax, that £350 is PAYE tax for that pay period.
Why PAYE matters
PAYE matters because it directly affects take-home pay. It also explains why a pay rise, bonus, second job or tax code change can change your monthly net pay.
- Pay rises: a higher salary can increase PAYE deductions.
- Bonuses: one-off payments can increase tax in that pay period.
- Tax code changes: a different code can raise or lower monthly tax.
- Multiple jobs: PAYE can be split across employments depending on HMRC records.
- Budgeting: net pay is what matters for monthly spending.
Calculate PAYE and take-home pay
PAYE is only one part of take-home pay. To estimate what reaches your bank account, you also need to consider employee National Insurance, pension contributions, student loan repayments and other deductions.
Estimate PAYE, NI and net pay
Use the take-home pay calculator to estimate monthly pay after tax and deductions.
PAYE FAQs
What does PAYE stand for?
PAYE stands for Pay As You Earn.
Is PAYE taken before I get paid?
Yes. PAYE Income Tax is deducted through payroll before net pay is sent to your bank account.
Why did my PAYE tax change?
Common reasons include a pay rise, bonus, tax code change, taxable benefit, second job, pension change or payroll correction.
Can PAYE be wrong?
It can be if payroll has the wrong tax code, pay data or HMRC information. Check your payslip and contact payroll or HMRC if something looks wrong.