PAYE tax comes out of your pay every time you’re paid. Your employer calculates income tax and National Insurance using your tax code, deducts both from your wages, and sends the money to HMRC by the 22nd of the following tax month if paying electronically (or the 19th by post). So the question of when you pay PAYE tax has two answers running in parallel: you pay it on every payday through deductions from your wages, and your employer settles up with HMRC once a month (or once a quarter for smaller payrolls).
When Deductions Start Coming Out of Your Pay
You don’t pay income tax on every pound. The personal allowance for the 2026/27 tax year is £12,570, so you can earn up to that amount in a year before income tax is due.1GOV.UK. Income Tax Personal Allowance and the Basic Rate Limit From 6 April 2026 to 5 April 2028 The allowance has been frozen at £12,570 since 2021 and stays there through 2027/28.
Your employer spreads the allowance across the year so a chunk of each paycheque is tax-free rather than the whole allowance being used up front. Paid monthly, roughly £1,048 of each month’s earnings avoids income tax. Paid weekly, about £242 does. This is why a new job started partway through the year can still show tax on the first payslip: the system assumes steady earnings for the rest of the year.
How Your Tax Code Sets the Deduction
HMRC assigns you a tax code, and your employer plugs it into payroll software to work out the right deduction each pay period.2GOV.UK. Understanding Your Employees Tax Codes The common code is 1257L, meaning the full £12,570 allowance applies. Multiply the number by 10 for your tax-free amount for the year.3GOV.UK. Understanding Your Employees Tax Codes – What the Numbers Mean
Your code can differ if you get taxable benefits like a company car, owe tax from a previous year, or have untaxed income HMRC is collecting through your wages. HMRC tells your employer which code to use, and the employer has no discretion to override it.4GOV.UK. Tax Codes If the code looks wrong, contact HMRC directly. The wrong code means overpaying or underpaying across the entire year.
The Rates You Pay Once You Cross the Threshold
Once earnings exceed the personal allowance, income tax applies at escalating rates. For 2026/27:
- Basic rate of 20% on taxable income from £12,571 to £50,270
- Higher rate of 40% on taxable income from £50,271 to £125,140
- Additional rate of 45% on taxable income above £125,140
The personal allowance also tapers for higher earners: if your adjusted income exceeds £100,000, you lose £1 of allowance for every £2 above that, and it disappears entirely at £125,140.5GOV.UK. Income Tax Rates and Personal Allowances
Deductions happen every payday. Weekly workers see tax taken 52 times a year, monthly employees 12 times. The payroll software divides the annual bands proportionally so each paycheque reflects roughly the right cumulative tax for the year so far. Because the calculation is cumulative, the system self-corrects for pay changes earlier in the year, and most people end up owing nothing extra when it closes.
National Insurance Comes Out at the Same Time
National Insurance contributions come out of the same paycheque alongside income tax, on different thresholds. For 2026/27, employees start paying National Insurance once earnings exceed £242 per week (£12,570 per year), known as the primary threshold.6GOV.UK. Rates and Thresholds for Employers 2026 to 2027 Employers pay their own National Insurance on each employee’s earnings above the lower secondary threshold of £96 per week (£5,000 per year).
Both go to HMRC bundled with the income tax as a single PAYE payment. From your side, they happen simultaneously and you never handle either yourself.
When Employers Send PAYE to HMRC
Employers work on a “tax month” cycle that doesn’t follow the calendar. Each tax month runs from the 6th of one month to the 5th of the next. Tax deducted from wages paid between 6 May and 5 June sits in one tax month, 6 June to 5 July in the next.7GOV.UK. Pay Employers PAYE
The deadline for that month’s PAYE depends on the payment method:
- Electronic payment must clear HMRC’s account by the 22nd of the following month
- Cheque by post must reach HMRC by the 19th of the following month
The 22nd is a hard cutoff. Funds need to have cleared, not just been sent. If the 22nd falls on a weekend or bank holiday, payment must clear by the last working day before.8GOV.UK. Running Payroll – Paying HMRC
Quarterly Payments for Smaller Employers
Employers whose average monthly PAYE bill comes to less than £1,500 can arrange to pay quarterly instead of monthly.9GOV.UK. PAYE and Payroll for Employers Quarters follow the tax year, not the calendar year, and the electronic deadline is the 22nd after each quarter ends:
- Quarter 1 (6 April to 5 July): pay by 22 July
- Quarter 2 (6 July to 5 October): pay by 22 October
- Quarter 3 (6 October to 5 January): pay by 22 January
- Quarter 4 (6 January to 5 April): pay by 22 April
You set this up by contacting HMRC’s payment enquiry helpline, and you need a consistent record of staying under £1,500. If payroll grows past that figure, HMRC moves you back to monthly.
Reporting Every Payday, Even If You Pay Quarterly
Separate from paying the tax, employers must report payroll to HMRC through Real Time Information. Every payday, the employer files a Full Payment Submission (FPS) with each employee’s pay, tax, and National Insurance for that period. The FPS must go in on or before the day employees are paid.10GOV.UK. Running Payroll – Reporting to HMRC – FPS
This is where small employers slip up. Even on the quarterly payment schedule, the FPS still goes in on every payday. Missing it triggers its own penalties, scaled by workforce size, starting at £100 per month.
What Happens If a Payment Is Late
HMRC gives employers one free pass per tax year: the first late PAYE payment doesn’t count as a default.11GOV.UK. Late Payment Penalties for PAYE and National Insurance After that, penalties escalate with the number of defaults in the year:
- 1 to 3 defaults: 1% of the amount paid late
- 4 to 6 defaults: 2%
- 7 to 9 defaults: 3%
- 10 or more defaults: 4%
The percentage applies to the tax and National Insurance that was late in the relevant tax month, ignoring the first late payment of the year.
Year-End Reconciliation and Refunds
The UK tax year runs from 6 April to 5 April the following year.12GOV.UK. Self Assessment Tax Returns – Deadlines Once it closes, HMRC checks whether cumulative PAYE deductions matched what you actually owed. If there’s a mismatch, because you changed jobs, had gaps without work, or had a wrong tax code, HMRC sends a P800 tax calculation letter. These go out between June and March of the following year.13GOV.UK. Tax Overpayments and Underpayments
If the P800 shows you overpaid, you can claim online and the money typically arrives within five to six weeks. If it shows you underpaid, HMRC usually adjusts your tax code for the following year so the debt comes gradually out of future pay. People registered for Self Assessment settle up through their tax return instead. If you think you’ve overpaid but haven’t received a letter, you can make a refund claim directly through HMRC rather than waiting.13GOV.UK. Tax Overpayments and Underpayments
PAYE Settlement Agreements Have Their Own Date
Some benefits, such as staff entertainment, small gifts, or expenses hard to divide fairly, sit awkwardly in regular payroll. Employers can apply for a PAYE Settlement Agreement (PSA) to handle the tax on these items in a single annual payment instead of running them through each employee’s pay. Benefits included must be minor, irregular, or impracticable to put through normal PAYE.
PSA payments follow their own deadline. The employer pays the tax and Class 1B National Insurance owed by 22 October after the end of the tax year the agreement covers, or by 19 October if paying by post.14GOV.UK. PAYE Settlement Agreements – Deadlines and Payment For benefits provided during 2026/27 (ending 5 April 2027), the PSA payment is due by 22 October 2027. Missing this exposes the employer to interest charges and potential penalties on top of the tax owed.15GOV.UK. Pay a PAYE Settlement Agreement