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PAYE (payroll)

PAYE (Pay As You Earn) is the system that HM Revenue & Customs (HMRC) uses to collect Income Tax and National Insurance contributions (NICs) from employees' pay as they earn it. The term 'employee' in this guide includes directors of limited companies.

As an employer, you'll have to deduct tax and NICs from your employees' pay each pay period and pay Employer's Class 1 NICs if they earn above a certain threshold. You pay these amounts to HMRC monthly or quarterly. If you don't send the correct amount, or if you send it in late, you may have to pay interest.

A new system PAYE tax deductions comes into force in 2013, called Real Time Information (RTI). If you run payroll yourself, you'll need to report your employees' payments and deductions to HMRC on or before each payday.

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