SMALL BUSINESS RESOURCES

PAYE tax tables

4 min read

As an employer in the United Kingdom, it’s your responsibility to pay the HMRC your employees’ PAYE taxes. You’ll need to know the various income tax brackets, understand PAYE tax tables and what your duties are.

What is PAYE (Pay as You Earn) Tax?

PAYE (which stands for ‘pay-as-you-earn’) is the withholding of tax and places the responsibility of paying income tax from an employee’s pay-packet onto the employer.

In this way, if you employ staff, it’s your responsibility to calculate and undertake payroll and PAYE accounting to pay both the HMRC and the employee correctly.

Do business owners pay PAYE?

Yes, business owners pay PAYE. While the income tax for each employee is technically owed by the individual themselves, the employer owns the responsibility of logistically paying PAYE to the HMRC on their behalf.

How is PAYE calculated?

PAYE is calculated through individual tax brackets which align with an employee’s wage or salary. 

Employees will pay a certain rate of tax depending on how much they earn, so there’s no flat rate of PAYE. This rate will also be different if your business is based in Scotland, and you’ll pay the Scottish Government rather than the HMRC.

To determine which income or salary bracket an employee sits in, and how much PAYE they owe, please consult the following PAYE tax tables.

PAYE Tax Tables

The following tax table outlines the 2021/22 individual tax brackets and PAYE tax rates for the UK and Scotland.

UK PAYE Tax Brackets (excluding Scotland)

PAYE category

Taxable income

UK Tax rate

Personal Allowance

Up to £12,570

0%

Basic rate

£12,571 to £50,270

20%

Higher rate

£50,271 to £150,000

40%

Additional rate

over £150,000

45%

Scottish PAYE Tax Brackets

PAYE Category 

Taxable income

Scottish tax rate

Personal Allowance

Up to £12,570

0%

Starter rate

£12,571 to £14,667

19%

Basic rate

£14,668 to £25,296

20%

Intermediate rate

£25,297 to £43,662

21%

Higher rate

£43,663 to £150,000

41%

Top rate

over £150,000

46%

 

Are tax rates changing in 2021?

Yes, tax rates and brackets have changed slightly. The above tax table lays out the current tax rates for 2021/22, which changed from the previous year.

For example, there was a £200 increase to the Basic Rate bracket and a £70 increase to Basic Personal Allowance since the 2020/21 year. Such changes are minor but still need to be accounted for.

This is why updated cloud accounting or payroll software – in conjunction with the advice of a bookkeeper or accountant – is essential to ensure payroll and PAYE accuracy year-by-year.

Can I claim PAYE tax back?

In aberrant situations when an employee has paid too much tax through PAYE, that employee can claim PAYE tax refunds through the HMRC.

This can occur for a variety of reasons, including the employer using the wrong tax code, the employee having more than one job, or breaks from work during the tax year.

As an employer, since you didn’t pay the tax yourself, but rather facilitated the income tax payment on behalf of your employee, you cannot claim PAYE tax refunds – only an employee can.

Payroll software

Far and away the best method for paying PAYE, processing payroll, and automating the calculation of PAYE withholding in terms of various income brackets is payroll software. 

While a payroll solution will certainly be a sound choice for payroll alone, a more holistic cloud accounting solution can also process PAYE. Plus, you’ll also gain the benefit of VAT accounting, bank feeds, income and expenditure reporting, and a host of other essential accounting capabilities.

No matter which way you go, it’s always best to consult with a trusted accountant when setting up your PAYE systems. They will ensure the correct tax brackets, PAYE tax codes and accounting methods are being applied.