PAYE (Pay As You Earn)
Definition
The UK system where employers deduct income tax and National Insurance contributions directly from employees' wages before paying them. Similar to US withholding but more comprehensive—most UK employees never need to file a tax return because PAYE handles their entire tax obligation. HM Revenue & Customs (HMRC) assigns a tax code to each employee that determines the correct amount to deduct.
Example
A UK employee earning £45,000 would have their employer deduct approximately £6,486 in income tax and £4,179 in National Insurance throughout the year via PAYE, with no return to file.
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