PAYE (Pay As You Earn) is the system that HM Revenue & Customs (HMRC) uses to collect Income Tax and National Insurance contributions (NICs) from employees’ pay as they get salary. Every employee including Directors in Limited Companies has tax deducted by an employer and paid to HM Revenue & Customs.

As an employer, you’ll have to deduct tax and NICs from your employees’ pay each pay period and pay Employer’s Class 1 NICs if they earn above a minimum 1st threshold. You can pay these amounts to HMRC monthly or quarterly. If you don’t send the correct amount, or if you send it to HM Revenue & Customs collection office late, you may have to pay interest. After the end of the tax year you must send HMRC an Employer Annual Return. These are on form P35 and forms P14. All employers are required to file this online.

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