What Is a PAYE Tax Code and How Does It Work?

In the UK, Income Tax is paid through a tax system called Pay As You Earn (PAYE). This system allows employers to deduct tax from employees’ wages or salaries each month. The amount of income tax that is deducted from an employee’s pay is determined by their PAYE tax code. Most people have a standard PAYE tax code, but understanding how it works can help you ensure that you are paying the correct amount of tax. calculate by using Paye Calculator

How PAYE Works

PAYE requires employers to deduct income tax and National Insurance contributions (NIC) from an employee’s pay each month. This money goes directly to HM Revenue & Customs (HMRC), which uses it to calculate an individual’s overall annual liability for income tax and NICs. At the end of the year, HMRC will then send out a P60 document that shows how much was paid in total during that year.

What Is A PAYE Tax Code?

A PAYE tax code is used by employers to determine how much income tax should be deducted from an employee’s wages each month. The code is made up of numbers and letters, with the numbers indicating how much should be deducted from your monthly wages before any National Insurance Contributions are taken out. The letter at the end indicates what allowances have been given to you for that year, such as Married Couples Allowance or Blind Person’s Allowance. These allowances reduce your overall taxable income for that year.

Understanding Your Own Tax Code

It is important for anyone in employment in the UK to understand their own personal PAYE Tax Code so that they can check whether they are paying the correct amount of income tax each month. If you are unsure about your current code, you can contact HMRC who will be able to provide more information on your specific situation. Additionally, if you think that your current code may not be correct, there are steps you can take to update it accordingly and start paying the right amount going forward.


Understandably, talking about taxes isn’t everyone’s favorite topic of conversation! However, understanding how to Pay As You Earn works and particularly how your own personal PAYE Tax Code applies is essential if you want to make sure that you’re paying the right amount of income tax each month. Taking some time today to review your current PAYE Tax Code could save you money in the long run – so why wait? Contact HMRC now for more information about your own personal situation today!

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