Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Pay As You Earn definition

What does Pay As You Earn mean? Pay As You Earn (PAYE) is the payroll withholding system by which employers and pension providers deduct tax and related social insurance amounts from salaries, wages and pensions at source and remit them to the tax authority. United Kingdom (England & Wales, Scotland, Northern Ireland): PAYE is governed principally by the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682) and administered by HMRC. Deductions include income tax and employee national insurance contributions, and the PAYE mechanism is also used for items such as student loan repayments and, where applicable, payrolled benefits. Employers and pension payers must operate...

Transferring PAYE liability to employees: HMRC directions (Regs 72E–72G), Reg 80 determinations, self-assessment interplay, notional payments, appeals, FTT limits and HMRC discretion (United Kingdom)

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Practice notes

As a general rule, Pay As You Earn (PAYE) requires employers to withhold tax and employee National insurance contributions (NICs) from wages, and these sums cannot normally be reclaimed straight from the worker. This Practice Note considers the limited situations where, by exception, PAYE sums can be sought from the employee rather than the employer. Comparable Rules apply for NICs, allowing outstanding contributions to be pursued from the employee instead of the employer in defined cases under the NICs rules.

Employer fails to deduct correct amount of tax

Where the employer has failed to withhold the proper PAYE tax, HMRC may recover any shortfall from the employee in either of the following situations:

the employer demonstrates to HMRC that it exercised reasonable care in operating PAYE and that any mistake arose in Good faith; or
HMRC believes the employee accepted payments knowing the employer deliberately did not deduct the right amount.

If either condition is met, HMRC may issue a direction relieving the employer of liability for the underpaid tax. Following such a direction, the employee’s self-assessment credit is strictly limited to the tax that was in fact deducted by the employer...

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Web page updated on 22/05/2026

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