PAYE: the basics

When to apply PAYE

PAYE (Pay As You Earn) is applied to all payments an employee receives as a result of working for you, including:

• salary and wages
• overtime, shift pay and tips
• expense allowances and claims (this only applies where these are paid in cash and, for expense payments, only if they fall within specific criteria - for more details, see our guide on business expenses and dispensations)
• bonuses and commission
• Statutory Sick Pay
• Statutory Maternity/Paternity/Adoption Pay
• lump sum and compensation payments - such as redundancy payments - unless they are exempt from tax

Tax relief on other deductions
If you give an employee payments other than in cash, such as shares or vouchers, PAYE must be applied to the cash value of such items. From April 2005, childcare arranged and paid for by an employer and childcare vouchers provided by an employer, up to a value of £50 a week, are exempt from tax and National Insurance, subject to the following conditions:

• the care used must be registered childcare or approved home childcare
• where a childcare benefit-in-kind scheme operates it must be available to all employees

Note that income tax and National Insurance contribution rates and thresholds may change from year to year. See our guides on income tax rates and allowances and National Insurance: the basics.

Subjects covered in this guide

• Introduction
• Employer's responsibility for PAYE
• Getting started with PAYE
• When to apply PAYE
• Employee tax codes
• PAYE forms - and when to use them
• Where to get further information on PAYE