PAYE collects tax through a system of deduction at source operated by the employer where the amount to be deducted from each relevant payment is determined on the basis of a tax code issued in respect of each employee1. The tax codes are used by employers, along with tax tables prepared by HMRC, to enable the amount to be deducted to be calculated taking into account an employee's cumulative PAYE income and cumulative tax deducted in the tax year to that point2. The employer must pay over to HMRC the tax which the employer is liable to deduct
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