PAYE is how employers deduct income tax and National Insurance from your pay before you receive it. Your tax code tells the employer how much tax-free pay to give you; most codes are cumulative, recalculating the whole year every payday so overpayments self-correct. The P45, P60 and P11D forms record your pay, tax and benefits so the figures stay accurate as you change jobs.
What PAYE does
PAYE — Pay As You Earn — is the system employers use to deduct income tax and National Insurance from your wages before paying you. Rather than facing a tax bill at the end of the year, you pay a little each payday. HMRC tells your employer how to do it; your employer runs the sums and sends the tax on.
Why your tax code matters
The instruction HMRC sends is your tax code. It sets how much tax-free pay you get and which rates apply. The standard 1257L means the £12,570 personal allowance spread evenly across the year — about £1,048 of tax-free pay a month. A different code means something specific: BR taxes everything at 20% (typical for a second job), and a K code adds to your taxable pay to collect tax on benefits. Get the code wrong and every payslip is wrong.
Cumulative vs non-cumulative
Most codes run cumulatively: every payday, payroll recalculates your tax for the whole year so far and deducts the difference. This is what makes the system self-correcting — start a job midway through the year and your unused allowance from earlier months is applied automatically, lightly taxing your first payslips.
A W1, M1 or X suffix switches this off, making the code non-cumulative: each payday is taxed in isolation, with no look-back. It’s the classic emergency tax arrangement for new starters, and it can cause temporary overpayments until a proper cumulative code arrives.
The forms: P45, P60 and P11D
- P45 — given when you leave a job. It records your pay and tax so far this year, so your next employer taxes you correctly instead of putting you on an emergency code.
- P60 — an end-of-year summary of your total pay and tax from an employer, issued after 5 April. Keep it; you need it for tax returns, mortgage applications and refund claims.
- P11D— reports taxable benefits in kind (company car, medical insurance) that aren’t on your payslip, so HMRC can collect the tax, usually by adjusting your code.
What happens if your code is wrong
If your code is wrong you either overpay or underpay through the year. The good news: on a cumulative code, once HMRC issues the correct code your next payslip squares up the whole year automatically — no claim needed. If it’s only caught after 5 April, HMRC reconciles PAYE and issues a P800 refund or bill. You can check and update the code HMRC holds for each job in your personal tax account at any time.
Check your payslip against ours
Enter your salary and tax code and our calculator reproduces the PAYE maths line by line — a quick way to see whether your payslip looks right.
Open the calculator