What is PAYE? This is a way of the government and/or employer withholding a certain amount of money from a person when they earn their paycheck. For example, a person that has earned £100 in the week will see a certain percentage cut from their paycheck in accordance with local laws. This is established within the contract at and a federal level as well. This is later written off when it comes to your income tax. PAYE is a system that has been established to make paying taxes easier for a person.
No Lump Sums
The main reason for PAYE being used has to do with the inability for people to deal with lump sum payments. Most people who are self employed have to deal with lump sums and it can be quite difficult to save that much money and put it to the side. To ensure that this is not a problem, The current PAYE system takes care of the tax collection for the employed.
The money is taken off from the top and used for social benefits and anything else an employee might be receiving. This is done with every paycheck that is earned you can check what is due by. You can check what contribution you will be making with this online PAYE calculator tool.
Employer is Responsible
The employer does not get to keep the money that is being taken off the top. However, they are legally bound to pass on any of these collections straight to the government after the money has been taken.
This will ensure the tax requirements are being met for all employees that are earning money with the business. If this does not occur, the business is then liable on behalf of the employee. This makes it easier for the employee and will ensure all of the headache is placed on the shoulders of the employer and no one else. The employer is generally required to make payments on a monthly basis, but this depends on the local requirements.
What type of pay is this applied to? This is not only applied to general pay checks, but anything that is being compensated for by the employer to their employees.
An example of this would be maternity pay, sick pay, pensions, and directors’ fees. All of these also come under this Revenue and Customs system and have to be compensated for in order to meet the government requirements.
Essentially, all income that is being earned (regardless of the means) will be passed through this system of PAYE to the government.