PAYE Totally Explained

Everything about Paye totally explained

:"Paye" is also an archaic term for caulking. PAYE (Pay As You-Earn) is an amount collected by employers on behalf of the government from employees. This is, in effect, a provisional payment of tax on the employee's income. The amount withheld is determined partly by the employee's expected tax allowances, exemptions and reliefs, and partly by tax tables that determine the amount of tax to be deducted for the salary or wage paid to the employee.
   Individual countries may apply the principle of PAYE differently to suit their own 'policy' objectives. PAYE as a system is also used to collect national insurance and or medical insurance contributions plus other social security contributions.
   The tax collected during the year may be enough to discharge the taxpayer's liability for tax, making a tax return redundant. However, if the taxpayer's affairs are complicated, a tax return may be required to determine the amount of tax payable or refundable.
   PAYE is, in effect, a withholding tax administered separately by the tax authority. As the tax man is a fact of life, all forms of income attract the attention of the tax collector, and administrative arrangements are put in place to allow for the smooth payment and collection of taxes.
   The UK introduced PAYE in 1944, following trials in 1940-1 . As with many of the United Kingdom’s institutional arrangements, the way in which the state collects income tax through PAYE owes much of its form and structure to the peculiarities of the era in which it was devised. The financial strain that the Second World War placed upon the country meant that the Treasury needed to collect more tax from many more people. This posed significant challenges to the government, and to the many workers and employers who had previously never come into contact with the tax system. The system is known by different names in different countries, and may be combined with other tax collection processes. Australia, for example, supplemented its PAYE system called PAYG which also administers the collection of VAT and business income. Canada and the USA also use wage-withholding systems with some similarities to the PAYE system. However, because the employee, not the taxing authority, determines the expected tax exemptions (the equivalent of the PAYE tax code), the Canadian and US wage withholding systems don't remove the need for the employee to file a tax return at the end of the year.

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