1. What is PAYE?

PAYE (Pay As You Earn) is the system used by HM Revenue and Customs (HMRC) to collect Income Tax and National Insurance from employees' wages or pensions. Your employer or pension provider deducts tax and National Insurance before paying you.

2. How PAYE Calculation Works

The basic PAYE calculation follows this formula:

Where:

• Gross Salary — Your total earnings before any deductions
• PAYE Tax — Income tax calculated based on your tax code and income bands
• National Insurance — Contributions based on your earnings above the primary threshold
• Other Deductions — Pension contributions, student loans, etc.

Tax Bands (2024-25):

• Personal Allowance: £0 - £12,570 (0% tax)
• Basic Rate: £12,571 - £50,270 (20% tax)
• Higher Rate: £50,271 - £125,140 (40% tax)
• Additional Rate: Over £125,140 (45% tax)

3. Understanding Your Payslip

Key Components: Your payslip shows gross pay, tax deductions, National Insurance, pension contributions, and net pay. Always verify your tax code matches your P60 or tax notice from HMRC.

4. Using the Calculator

Tips: Enter your gross annual salary, select the correct tax year, input your tax code (usually 1257L for standard allowance), and include any pension contributions as a percentage of your salary.

5. Frequently Asked Questions (FAQ)

Q1: What is the standard tax code for 2024-25?
A: The standard tax code is 1257L, which gives a personal allowance of £12,570.

Q2: How is National Insurance calculated?
A: NI is calculated at 8% on earnings between £12,570 and £50,270, and 2% on earnings above £50,270.

Q3: What if I have multiple jobs?
A: Your personal allowance is usually applied to your main job. Secondary jobs are typically taxed at the basic rate using tax code BR.

Q4: When should I check my tax code?
A: Check whenever you start a new job, change jobs, or receive notification from HMRC. Incorrect tax codes can result in over or underpayment.

Q5: Are pension contributions tax-free?
A: Pension contributions are made from pre-tax income, reducing your taxable income and potentially moving you into a lower tax band.