Pay as you earn (PAYE) meaning

Under the large and public client off-payroll regime Medium and large private sector entities with a UK link are obliged to: decide whether IR35 is applicable to an engagement involving an off-payroll worker; and in specified situations outlined below, operate Pay As You Earn (PAYE) and account for employer National Insurance contributions (NICs) on payments made to off-payroll workers For an overview of the IR35 framework, see Practice Note: IR35—introduction, developments and key difficulties. For details of the large and public client off-payroll regime, see Practice Note: IR35—the large and public client off-payroll regime. For guidance on the practical considerations for the end client and, where different, the fee payer, when an arrangement falls within the large and public client off-payroll regime, see Practice Notes: IR35—the large and public client off–payroll regime—practical considerations for the end client and IR35—the large and public client off–payroll regime—practical considerations for the fee-payer respectively...

In this issue: Tax Diversity and gender pay gap Employment Tribunals Industrial Relations Law Reports (IRLR)—September 2025 Dates for your diary Trackers New Q&As Employment resources on Lexis+® LexTalk® Employment: a Lexis®Nexis community Daily and weekly news alerts Tax Legislation Day: Draft Finance Bill 2026—tackling non-compliance in the umbrella company market Legislation Day 2025 brought the release of draft Finance Bill 2026 provisions which, if progressed into law, would make agencies and end clients jointly and severally accountable for any Pay As You Earn (PAYE) and National Insurance Contributions (NICs) failings by umbrella companies. In Tax analysis: Legislation Day: Draft Finance Bill 2026—tackling non-compliance in the umbrella company market, John Chaplin, a partner at BDO, reviews these proposals. Diversity and gender pay gap Government publishes report on how to improve gender pay equality in the workplace The Office for Equality and Opportunity and the Women and Equalities Unit have issued a...

Thompson v HMRC [2024] UKFTT 138 (TC) The taxpayer had been employed in IT until 2013, when he chose to work for himself as an IT consultant. He secured assignments through an organisation (BFB) that specialises in IT contracting, operating on the basis that he would be paid under the Pay-as-you-earn (PAYE) regime, with deductions for income tax and National Insurance contributions (NICs). Although the arrangements were not fully clear to the FTT, the taxpayer also received remuneration for his services from another company, Atlas Trustees Ltd. Neither BFB nor Atlas made any deductions for income tax or NICs. Mr Thompson’s 2013–14 tax return reported his employment income but omitted the amounts paid by BFB and Atlas. After opening an enquiry, HMRC wrote to the taxpayer setting out the further tax due and stating that HMRC...

In this issue: VAT Taxes management and litigation Employment taxes Real estate tax Individuals and income tax Budgets and Finance Bills Daily and weekly news alerts New and updated content Dates for your diary Trackers Useful information VAT UT overturns FTT to find that HMRC could deregister ‘mini-umbrella companies’ from VAT (Elphysic Ltd v HMRC) In Elphysic Ltd v HMRC [2025] UKUT 236 (TCC), the Upper Tribunal (UT) set aside the First-tier Tax Tribunal’s (FTT) conclusion that HMRC lacked authority to remove the taxpayers from the VAT register. The UT also dismissed the taxpayers’ cross-appeals, thereby upholding the FTT’s findings that they were not entitled to use the VAT flat rate scheme and could not claim National Insurance Contributions (NICs) employment allowances. See News Analysis: UT overturns FTT to find that HMRC could deregister ‘mini-umbrella companies’ from VAT (Elphysic Ltd and others v HMRC)...

STOP PRESS: Abolition of non-dom regime and remittance basis of taxation from 2025–26 The Finance Act 2025 has scrapped the remittance basis and, from 6 April 2025, substitutes a residence-based system. The reforms bring in a new Foreign Income and Gains (FIG) regime and revise the rules for overseas workday relief. For detailed guidance on these updates, refer to Practice Note: The abolition of the remittance basis of taxation from 2025–26. The UK operates a comprehensive framework for taxing employment income. This Practice Note explains the core income tax principles for employment income and the way they attach to earnings. Keep in mind that any form of remuneration connected to an individual’s employment can give rise to income tax and National Insurance contributions (NICs) liabilities (for NICs, potentially affecting both employer and employee), together with possible apprenticeship levy costs for the employer. In addition, intricate provisions govern the withholding and collection of income tax on employment income and employee NICs under the Pay As You Earn (PAYE) system. These...

Brexit impact The UK ceased to be an EU Member State on exit day, 31 January 2020. Under the Withdrawal Agreement, the state pension and benefit rights of UK nationals residing in the EU, European Economic Area (EEA) or Switzerland are protected. See: Benefits and pensions for UK nationals in the EU, EEA or Switzerland. Likewise, information on the entitlements of EEA and Swiss citizens to UK benefits and state pensions is set out at: Benefits and pensions for EEA and Swiss citizens in the UK. State pensions A state retirement pension depends on an individual’s National Insurance (NI) contribution record and may consist of up to three elements: the basic old age pension the State Second Pension (S2P—formerly the State Earnings Related Pension Scheme, SERPS) the graduated pension Payments are generally made gross, with tax collected through Pay As You Earn (PAYE) against a person’s other income, such as an occupational or private pension. Income tax can also...

Practice Note This note outlines the Finance Act 2009 (FA 2009) penalty framework for late payment of: income tax and Class 1 NICs collected through pay as you earn (PAYE) student loan deductions income tax due under the Construction Industry Scheme (CIS) Class 1A and Class 1B NICs the apprenticeship levy Overdue liabilities also attract interest; see Practice Note: Interest on late paid tax. How late payment penalties are worked out depends on the payment cycle: monthly or quarterly (this is usually the position for income tax and Class 1 NICs under PAYE, student loan deductions, CIS payments and apprenticeship levy payments), or annually (for Class 1A and Class 1B NICs) Penalties on late-paid self assessed income tax (rather than amounts settled via PAYE) are dealt with in Practice Note: Late payment penalties—income tax, capital gains tax and corporation tax. Beyond late payment penalties, there are also sanctions for filing returns...

Net settling a share award Net settling a share award is employed to cut down the quantity of shares a company is required to issue in order to discharge the award. Awards can, in principle, be net settled against both any exercise price due and any tax or National Insurance contributions (NICs) that arise. Key benefits of net settlement include reduced dilution for existing shareholders and the possibility for a company to stretch its headroom under any relevant dilution limits, thereby enabling those limits to accommodate more awards. Net settlement for tax and NICs means the company issues to the award holder a number of shares whose value equals the post‑tax amount they would have retained had they taken the full, gross allocation and sold sufficient shares on‑market to meet the pay as you earn (PAYE) and NICs obligations due at that point in time in practice. The company then settles the PAYE and NICs by remitting a cash payment to HMRC...

The Employment Rights Act 1996 (ERA 1996) permits an employer to make a deduction from a worker’s ‘wages’ (as defined in ERA 1996, s 27) if: a statutory provision requires or authorises the deduction to be made, for example the obligation to deduct income tax or National Insurance contributions through Pay As You Earn (PAYE); a relevant term of the worker’s contract permits such a deduction, for instance where the employer has advanced a loan and holds a contractual right to recover money from the worker’s wages in repayment; the worker has already confirmed in writing their agreement or consent to the deduction being taken For further information, see, generally, Practice Note: Deductions from wages, and in particular the principal section covering the topic 'When deductions are lawful'...