UK PAYE and National Insurance: an overview

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Availability. The generator is not yet live on lexsalim.com. United Kingdom support is in development; United States and Canada are planned.

This article explains the two deductions most UK employees see on every payslip. It is a plain-language overview, not tax advice, and it deliberately contains no rates, bands or thresholds: HM Revenue & Customs (HMRC) sets those and they change, usually each tax year starting 6 April. Always use HMRC's current guidance for figures.

PAYE

Pay As You Earn is the system by which employers deduct income tax from wages before paying them, and account for it to HMRC. The employee does not pay the tax separately; it is withheld each pay period.

How much is withheld depends on:

• the employee's tax code, issued by HMRC, which tells the employer how much tax-free pay the employee is entitled to in the year and whether any adjustments apply;
• the pay in the period and, in most cases, the pay so far in the tax year (a cumulative method), so that the deduction smooths out over the year;
• the income-tax bands and rates in force for the tax year.

A payslip shows the tax code and the income tax deducted for the period and, usually, for the year to date.

National Insurance

National Insurance (NI) contributions are paid by employees and separately by employers on earnings above certain levels. Employee contributions are deducted from pay; employer contributions are an additional cost to the employer and are not taken from the employee's wages.

NI is normally calculated on the earnings of each pay period on its own (it is not cumulative like PAYE), using the NI category letter that applies to the employee and the thresholds and percentages in force. The payslip shows the employee's contribution for the period; some layouts also show the employer's contribution for information.

Pensions

Where an employee is in a workplace pension, the employee's contribution appears as a deduction and the employer's contribution may be shown for information. Automatic-enrolment duties are the employer's responsibility and are outside the free generator's scope.

What the free generator is designed to do

When UK support is released, the generator is intended to apply a verified UK rule pack to the figures you enter, produce gross-to-net calculations with PAYE and employee NI, show employer information where available, support pension deductions where the layout allows, and produce a payslip PDF. Until that rule pack has been validated by the application team, no figure it produces should be treated as a payroll calculation of record.

What it does not do

It does not submit Real Time Information (RTI) returns to HMRC, does not pay tax or NI to HMRC, and does not replace your payroll software's statutory reporting. See Payslip generation versus payroll tax filing.