PAYE

Nature

PAYE is applied to wages and salaries, as well as sick pay, maternity pay, directors' fees and pensions (but not the state pension, although it remains taxable). Each person has a tax code which is used to reflect any allowances, along with other taxable income (including the state pension). This means that the PAYE system typically results in the correct amount of tax being paid on all the taxable income of a taxpayer, making a tax return unnecessary. However, if the taxpayer's affairs are complicated, a tax return may be required to determine the amount of tax payable or refundable.