If you’re employed, you likely know that your salary is subject to PAYE (Pay As You Earn) tax. This system ensures that income tax and National Insurance contributions (if applicable) are deducted automatically by your employer before you receive your paycheck. While the process is largely automated, it’s essential to check whether your employer is meeting their tax obligations on your behalf.
Understanding how to verify that your PAYE tax is being paid correctly can protect you from potential tax issues, fines, or incorrect deductions down the line. Here’s everything you need to know about how to check if your employer is paying your PAYE tax.
What is PAYE?
PAYE (Pay As You Earn) is a system used by employers to collect income tax and National Insurance contributions from employees. This tax is deducted automatically from your salary before you are paid, so you don’t have to worry about filing your taxes or paying them directly.
For most people, the amount of tax deducted is based on their income, tax code, and any applicable deductions such as student loans or pension contributions. Employers are required by law to pay this tax to HM Revenue and Customs (HMRC) on your behalf.
While this process is usually smooth, it’s still wise to keep track of your payments and make sure the amounts are correct.
Why It’s Important to Check?
You might be wondering: “Why should I bother checking?” Here are some reasons why it’s crucial to stay on top of your PAYE tax payments:
Prevent Overpayment or Underpayment: If your employer isn’t calculating your tax deductions correctly, you could either end up paying too much or too little tax. Overpayments might result in you losing money that you could otherwise use, while underpayments could lead to future tax liabilities.
Avoid Penalties: If HMRC discovers you have been underpaying your tax due to employer negligence, you may be held liable for the outstanding amount. This could also result in interest charges or penalties.
Ensure Your Tax Code is Correct: A mistake in your tax code can lead to incorrect deductions. You want to ensure your tax code reflects your actual circumstances (such as allowances or exemptions).
Track Your National Insurance Contributions: National Insurance contributions are critical for your future benefits, such as state pensions. If they’re not being deducted correctly, it might affect your eligibility for future benefits.
How to Check If Your Employer is Paying Your PAYE Tax?
1. Review Your Payslips
Your payslip is the first and most immediate way to check if your employer is making the correct tax deductions. Every payslip should show:
- Gross Income: The total amount you earn before any deductions.
- Tax Deductions: The amount of tax deducted via PAYE.
- National Insurance Contributions: Deductions for National Insurance, if applicable.
- Net Pay: The final amount you take home after all deductions.
If you’re unsure about how to read your payslip, most companies will have a guide or explanation of the various terms. Pay close attention to the “Taxable Pay” and “Tax Deducted” sections to ensure that the correct amount is being withheld based on your income.
2. Check Your Tax Code
Your tax code is one of the most important pieces of information for calculating the amount of PAYE tax you owe. It determines your personal tax allowance—the amount of income you can earn before paying tax—and helps ensure that the right amount of tax is deducted.
Your tax code will usually appear on your payslip or your P60 (a summary of your yearly earnings and tax deductions). If you feel like you’re being taxed too much or too little, you might have an incorrect tax code. Common tax codes include:
- 1257L: This is the standard tax code for most people in the UK, meaning you can earn up to £12,570 tax-free in a given tax year.
- BR: This code means you are being taxed at the basic rate (20%) on all income, and no personal allowance is being applied.
- D0 or D1: These codes apply if you’re being taxed at a higher rate (40% or 45%) on all of your income.
If your tax code seems off, you can contact HMRC directly to request a review. It’s essential to ensure that your code reflects any personal circumstances like marriage allowance, blind person’s allowance, or income from other sources.
3. P60 or P45
The P60 is an end-of-year summary of your total earnings and tax deductions. Employers issue it annually after the end of the tax year (April 5), and it provides a comprehensive overview of your income, taxes, and National Insurance contributions. This document is useful for ensuring that your total tax paid matches your records.
If you’re leaving a job, you’ll receive a P45, which shows your earnings and tax deductions up to the date you left. Keep this document safe, as it may be needed for your new employer or for your personal records.
4. Use Your Personal Tax Account
HMRC offers a personal tax account, which is an online portal where you can view your income tax, National Insurance contributions, and other relevant information. By logging into your account, you can check whether your employer is paying your PAYE tax as it should be.
The personal tax account also allows you to check your tax code, make amendments to your details, and contact HMRC if you believe there’s an issue with your tax payments. This tool is available 24/7, and it can help you stay up-to-date with your tax situation.
5. Check Your National Insurance Record
To ensure that National Insurance contributions are being made correctly, you can check your National Insurance record. This will give you a history of your contributions, which is essential for determining eligibility for benefits like the State Pension. Discrepancies between your record and what you see on your payslip may indicate an issue with PAYE.
You can access your National Insurance record online via your HMRC personal account.
6. Contact HMRC Directly
If after reviewing all of the above you still have concerns, or if you believe there’s been an error, you should contact HMRC. They can investigate and rectify any discrepancies in your tax payments. It’s advisable to do this early if you suspect any issues, as it can take time for them to resolve matters and ensure that you’re not over or underpaying.
Check also: How to Get a Tax Number from SARS – 3 Easy Steps
PAYE tax deductions are an integral part of your employment, and it’s crucial to ensure that your employer is paying your tax and National Insurance contributions correctly. Regularly reviewing your payslips, tax code, and official documents like your P60 and P45 is essential to maintain financial peace of mind and to avoid future surprises.
Remember, errors in your tax deductions can affect your financial situation, benefits, and future pension, so don’t hesitate to take action if something seems off. By keeping an eye on your deductions and using tools like your personal tax account, you can ensure that your PAYE tax is being managed correctly.
If you’re in doubt, always reach out to HMRC—they are there to help and can guide you through any issues you may encounter. Checking your tax payments is an important part of financial management and a simple way to ensure your income is being taxed correctly.
