If you have heard the term ‘PAYE tax’ before yet are confused regarding what it is, then you have landed on the right page. Here you will learn everything there is to know about this type of tax.
So, first thing is first, what is PAYE tax? ‘PAYE’ stands for pay as you earn. It was first established many, many years ago in 1944. Yet it has adapted since its initial introduction. It provides contractors and alike with an approach to paying their National Insurance Contributions and Income Tax to the HMRC (HM Revenue & Customs).
Before providing further information it is worth considering the fact that there are PAYE umbrella companies out there which have been designed in order to help contractors and freelancers. These companies take care of all the paperwork and the taxes whilst ensuring workers maximise their income. They do this via acting as your employer. All you need to do is hand over your timesheet and expenses whilst they do all of the hard work and ensure you meet the legislations that are in place. Thus, if you are still feeling confused by the end of this post, this is the option you should choose. In fact you will probably find you wish to go for this option regardless.
So, how does the system work? The PAYE approach sees you pay tax over the course of an annum. This is in contrast to paying an annual sum. Your contributions are going to be administrated through the use of the tax code system. This represents the amount you need to pay.
This means that every time you earn some money you will have a percentage deducted as part of the tax. Hence the name; pay as you earn. This is much more beneficial because it is a lot easier to manage and there is less risk involved.
The reason why it is so beneficial to seek the aid of one of the leading PAYE umbrella companies is because it can be very difficult to work out how much PAYE you owe alone. Furthermore, filling out all of the necessary forms can be rather daunting as well. You have to contact the HMRC to and inform them of your status. If you feel confident enough to do all of this yourself then go ahead. However, if you feel unsure, then don’t worry; merely take the help of the professionals.
Before concluding it is important to be aware of some key points. Firstly, you will only require to pay PAYE tax if you earn over the current National Insurance threshold for the year. Keep an eye on this encase it changes in the future. Furthermore, you can actually claim expenses too, such as your credit card reader, rental fees, Internet bill, and so on. And if you are looking for your PAYE tax code then simply find your payslip – it will be located on here.
Hopefully this article will have helped to clear up any confusion you had regarding PAYE tax. The concept is fairly easy to understand yet sorting the tax out can be challenging. Thankfully you have umbrella companies available to give you a hand.