PAYE stands for Pay As You Earn, and it is not a tax but a collection method: your employer works out the Income Tax and National Insurance due on each payment using your tax code and HMRC's tables, deducts them before you are paid, and sends them to HMRC on your behalf, which is why most employees never file anything.
What PAYE actually does
Every time you are paid, payroll takes the gross for the period, applies the share of your tax-free allowance that belongs to that period, charges Income Tax on the rest at the bands that apply, works out National Insurance on the pay in that single period, and deducts anything else you have agreed to such as a pension contribution or a student loan repayment.
The Income Tax half
GOV.UK gives the standard Personal Allowance as £12,570, with the basic rate of 20% from £12,571 to £50,270, the higher rate of 40% from £50,271 to £125,140 and the additional rate of 45% above that, and the allowance itself falling by £1 for every £2 of income above £100,000 so that it is gone at £125,140. Scotland has its own bands.
The National Insurance calculation, period by period
National Insurance is assessed on each pay period rather than on the year, which is why a bonus month takes a bigger bite than the annual arithmetic suggests. On the standard category A, GOV.UK's table for the current year charges nothing up to the primary threshold, 8% on earnings between it and the upper earnings limit, and 2% above.
Payslip template UK: what every payslip should show
A payslip should show the gross for the period, each deduction separately, the year-to-date totals, your tax code and your National Insurance number. The year-to-date figures are the ones to check: a cumulative tax code means this period's deduction depends on them, and an odd number there explains an odd deduction here.
When PAYE is not the whole story
PAYE settles most people's tax. It does not cover income outside the payroll, and it does not deduct student loan repayments where you are an off-payroll worker, which GOV.UK states plainly: the deemed employer does not deduct them and you report and pay them through Self Assessment instead. Untaxed savings, property or dividend income also fall outside it.
Questions people ask about what is paye
What is PAYE on a payslip?
It is the Income Tax your employer has deducted under Pay As You Earn for that period, worked out from your tax code and the pay to date. It sits beside National Insurance, which is a separate deduction calculated on that period alone.
Is PAYE the same as Income Tax?
No. Income Tax is the tax; PAYE is the system that collects it from wages as they are paid, along with National Insurance. Somebody with only employment income usually pays all their Income Tax through PAYE and never files a return.
Why did my tax change this month with the same salary?
Usually because of the cumulative calculation: a code change, a correction to earlier periods or an extra payment shifts the year-to-date position and this period settles the difference. A non-cumulative code with W1 or M1 stops that catching up.
Does PAYE cover my student loan?
For an ordinary employee, yes, as a separate deduction on the payslip. For an off-payroll worker inside IR35 it does not: GOV.UK says deemed employers do not deduct student or postgraduate loan repayments and the worker pays them through Self Assessment.