PAYE Glossary for UK Business Owners and Employers

Welcome to Mercian Accountants’ PAYE (Pay As You Earn) Glossary, your essential guide to understanding payroll and taxation terms that are vital for UK business owners and employers. This resource is designed to clarify key concepts and ensure compliance with HM Revenue and Customs (HMRC) regulations.

A. Allowances

• Personal Allowance: The amount of income an individual can earn before they start paying income tax.
• Tax-Free Allowance: Specific allowances that reduce the amount of taxable income, such as marriage allowance.

B. Benefits in Kind (BIK)

• Company Car: A car provided by an employer for the private use of an employee, taxable based on type and CO2 emissions.
• Private Medical Insurance: Taxable benefit if provided by the employer.

C. Contributions

• National Insurance Contributions (NICs): Mandatory contributions by both employees and employers to qualify for certain state benefits.
• Pension Contributions: Deductions from salary towards a pension scheme, often matched or supplemented by the employer.

D. Deductions

• Student Loan Repayments: Deductions based on earnings thresholds to repay a student loan.
• Childcare Vouchers: Scheme allowing parents to sacrifice a portion of their salary tax-free for childcare costs.

E. Employment Allowance

• Eligibility: Available to most businesses and charities to reduce their Class 1 NICs bill up to a certain limit per tax year.

F. Full Payment Submission (FPS)

• Reporting to HMRC: The process of sending employee payment details to HMRC every time a payment is made.

G. Gross Pay

• Total Earnings: The total salary or wages earned by an employee before any deductions.

H. HM Revenue and Customs (HMRC)

• Tax Authority: The UK government department responsible for collecting taxes and administering the PAYE system.

I. Income Tax

• Tax on Earnings: Charged on personal income, including wages, pensions, and savings interest, beyond the personal allowance.

J. Job Retention Scheme (Furlough)

• Government Support: A scheme to support employers in paying part of their employees’ wages during the COVID-19 pandemic.

K. Key Dates

• Tax Year: Runs from April 6th to April 5th the following year. Important for PAYE reporting and payments.

L. Leavers

• P45 Forms: Issued to employees when they leave, detailing tax paid and salary received during the tax year.

M. Monthly Reporting

• RTI Submissions: Real-Time Information (RTI) submissions required each time payroll is run, providing up-to-date employee information to HMRC.

N. Net Pay

• Take Home Pay: The amount of salary an employee takes home after deductions.

O. Overpayments

• Tax Overpayments: Situations where an employee has paid more tax than due, often leading to a refund.

P. PAYE Code

• Tax Code: Issued by HMRC to indicate how much tax to deduct from an employee’s pay.

Q. Qualifying Earnings

• Pension Calculations: Earnings used to calculate contributions for auto-enrolment pension schemes.

R. Real-Time Information (RTI)

• HMRC Reporting: The system used to report tax and National Insurance information to HMRC.

S. Statutory Payments

• Sick Pay, Maternity Pay, etc.: Payments made by the employer, often recoverable from HMRC.

T. Taxable Pay

• Earnings Subject to Tax: Pay after allowances but before deductions.

U. Umbrella Companies

• Contractor Payroll: Companies that act as employers to agency contractors, managing payroll and deductions.

V. Voluntary Deductions

• Charitable Donations, etc.: Deductions made from an employee’s salary at their request.

W. Workplace Pensions

• Auto-Enrolment: Employer’s legal duty to enrol eligible staff in a workplace pension scheme and contribute towards it.

X. Year-End Reporting

• P60 Forms: Summary provided to employees at the end of the tax year showing total pay and deductions.

Y. Yearly Review

• PAYE Settlement Agreements: An annual agreement with HMRC to simplify tax on small or irregular benefits.

Z. Zero-Hour Contracts

• Casual Employment: Contracts where the employer is not obliged to provide regular work, and the employee is not obliged to accept it.

This glossary is part of Mercian Accountants’ commitment to supporting UK business owners and employers. For further assistance or bespoke advice, please contact our expert team.

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