--- title: What Is PAYE? 2026/27 UK Guide for Employees and Employers description: "**Updated for the 2026/27 tax year.** Pay As You Earn (PAYE) is the system employers and pension providers use to deduct Income Tax—and usually employee National Insurance—from payments before the recipient receives them. HMRC uses the tax code and payroll…" url: "https://www.accountingfirms.co.uk/knowledge-bank/what-is-the-pay-as-you-earn-paye-system/" updated: "2026-08-12" category: Income Tax --- # What Is PAYE? 2026/27 UK Guide for Employees and Employers **Updated for the 2026/27 tax year.** Pay As You Earn (PAYE) is the system employers and pension providers use to deduct Income Tax—and usually employee National Insurance—from payments before the recipient receives them. HMRC uses the tax code and payroll information to estimate the correct deduction for each pay period. ## How PAYE works 1. HMRC issues or confirms a tax code for the employee or pension recipient. 2. The employer applies the code to taxable pay through payroll software. 3. Income Tax, National Insurance, student-loan deductions and other authorised amounts are calculated. 4. The employer reports pay and deductions to HMRC through a Full Payment Submission, normally on or before payday. 5. The net amount is paid to the worker, and the employer pays payroll liabilities to HMRC by the relevant deadline. ## What PAYE can deduct - Income Tax - Employee National Insurance contributions - Student and postgraduate loan repayments - Attachment-of-earnings orders where applicable - Tax collected for certain benefits, underpayments or other income through the tax code - Pension contributions, depending on the workplace scheme These deductions follow different legislation and thresholds. A correct Income Tax code does not by itself prove that National Insurance or student-loan deductions are correct. ## Income Tax bands for 2026/27 For most taxpayers in England, Wales and Northern Ireland, the standard Personal Allowance is £12,570, subject to income and circumstances. Taxable non-savings income is generally charged at 20% within the basic-rate band, 40% at the higher rate and 45% at the additional rate. The Personal Allowance is reduced by £1 for every £2 of adjusted net income above £100,000 and is normally eliminated at £125,140. Scottish taxpayers have separate rates and bands for employment, pension and property income. PAYE software applies the Scottish code indicated by an “S”. Welsh codes use “C”, although the final Welsh rates must be checked for the year concerned. ## Understanding the tax code A common code is 1257L, reflecting the standard Personal Allowance where no adjustment is needed. Codes may include allowances, benefits, prior underpayments, multiple jobs or restrictions. BR, D0 and D1 broadly tax all income from that source at basic, higher or additional rate. 0T gives no Personal Allowance, while K codes collect tax where deductions exceed allowances. Emergency codes such as 1257L W1, M1 or X calculate each pay period independently and can create temporary over- or underpayments. ## Starting a new job Give the employer a P45 where available. If there is no P45, complete the starter declaration accurately, including whether this is your first job since 6 April and whether you have another job or pension. Incorrect starter information is a common cause of BR or emergency-code deductions. ## Multiple jobs and pensions HMRC normally allocates allowances across sources and may tax secondary income at BR, D0 or another code. Check that estimated annual pay is assigned sensibly and that the same allowance has not been duplicated. The final liability depends on total income, even when each payroll appears reasonable in isolation. ## Benefits in kind Company cars, medical insurance and other taxable benefits may be included through payrolling or reflected in the tax code. Benefits not payrolled may be reported after the year end on form P11D. Check that benefits that ended are removed and that estimated values are realistic. ## Employer reporting and payment deadlines Employers normally submit the Full Payment Submission on or before payday and an Employer Payment Summary where relevant. PAYE and National Insurance are usually payable monthly, by the 22nd after the tax month for electronic payments, with quarterly arrangements available to eligible smaller employers. Late reporting or payment can trigger penalties and interest. ## Documents employees should receive - A payslip on or before payday - A P45 when employment ends - A P60 by 31 May after the tax year if still employed on 5 April - A P11D or benefit information by 6 July where required ## Does PAYE mean no tax return is needed? No. PAYE may not settle tax on self-employment, rent, large savings or dividends, capital gains, overseas income or certain high-income charges. You may still need Self Assessment. Conversely, a PAYE error can often be corrected through HMRC without filing a return solely for that reason. ## Checking deductions Compare the payslip's gross pay, taxable pay, tax code, year-to-date figures and deductions with your Personal Tax Account or HMRC app. Tell both the employer and HMRC promptly if job details, benefits or income estimates are wrong. Employers must use the code HMRC supplies unless the payroll information itself is incorrect. ## Example An employee starts a second job without a P45 and the employer uses BR. All pay from that job is taxed at 20%. This may be appropriate if the Personal Allowance is fully used elsewhere, but a higher-rate taxpayer could still owe more. HMRC can reallocate the codes after both employments are recorded. Read HMRC's official [PAYE guidance](https://www.gov.uk/income-tax/how-you-pay-income-tax) and [tax-code guidance](https://www.gov.uk/tax-codes). Our [tax code guide](https://www.accountingfirms.co.uk/knowledge-bank/what-is-a-tax-code-and-how-is-it-determined/) explains common letters and emergency codes. ## Frequently asked questions ### Is PAYE a separate tax? No. It is a collection system for Income Tax and certain other deductions. ### Can an employer change my tax code? An employer applies HMRC's code and can correct payroll data, but HMRC normally determines the code. ### Why did my tax change when pay stayed similar? A new code, cumulative year-to-date adjustment, bonus, benefit or threshold crossing can change the deduction. *This guide is general information. Check the live HMRC calculation for your circumstances.*