What is PAYE?
PAYE stands for Pay As You Earn. It is a system by which employers deduct tax and National Insurance contributions (NIC) from their employees’ salaries. You are an employee of the armed forces and they deduct tax and NIC from your salary under PAYE.
If you live or are based in Scotland for some or all of the tax year, you should also look at the page ‘Scottish income tax’.
How is the monthly pay I actually receive calculated?
The Joint Personnel Administration Centre (JPAC) is responsible for paying all service personnel’s salary, expenses and allowances after deducting tax and NIC under the Pay As You Earn (PAYE) system. Service personnel are paid monthly.
As well as your basic pay and cash allowances you will most probably receive some non cash employment benefits such as accommodation, Council Tax and utilities. You normally have to pay a charge towards these employment benefits and JPAC will deduct these charges from your salary before paying you. You can find out more about these and other charges or deductions from your salary on our webpage ‘what deductions can be taken from my salary?’.
How is the tax I pay collected?
HMRC ask JPAC to deduct tax from your gross salary and allowances under the PAYE system. There is more information on how tax is collected from your wages and salary in the 'employed section'.
What is my PAYE code?
Most individuals in the UK are entitled to a personal allowance, which is the amount of income you can receive before you have to pay tax. The amount of the personal allowance changes each year. You can find out how much this allowance is and more about it and other allowances in the section ‘What tax allowances am I entitled to?’.
HMRC use the personal allowance as the starting point to calculate your PAYE code.
HMRC issue this code to the JPAC and the JPAC then uses it to calculate how much tax to deduct from your salary each month.
There is more information on PAYE codes in the 'employed section'.
How do I check my PAYE code and/or notice of coding?
HMRC will send you a notice of coding (form P2), which shows how your PAYE code is made up. It is important that you check this notice of coding as HMRC can make mistakes. Read our separate section on checking your coding notice to understand how the code has been calculated and make sure that it is correct. That section also tells you what to do if you do not understand your coding notice or think it is wrong.
It is particularly important that you take action if you think you are not paying enough tax.
What is form P800 and how do I check that it is correct?
HMRC check everyone’s income and tax payments at the end of each year; they do this by adding together all the income you have received, deducting your personal allowances and any other tax deductions and then working out the tax you owe on this net amount. HMRC then deduct the tax that has been taken from your salary under PAYE or by any other means and, if they think you still owe them tax, they will issue you with a form P800 or a simple assessment and you will have to pay any underpaid tax to them, possibly in one lump sum. Alternatively, if you are in the self assessment system any underpayment will normally need to be paid by the 31 January following the end of the tax year. You can find out more about the form P800, simple assessment and self assessment on our website.
If you are happy that the PAYE code HMRC has issued is correct make sure that the JPAC is actually using the same code by checking the “Tax Code” section of your payslip.
How is the tax I need to pay calculated?
As your income increases the percentage rates at which you need to pay tax on that income also increase. At the moment tax on employment income is payable in three bands (five bands if you are a Scottish taxpayer). The bands normally change each tax year and the rates sometimes change. You can find out more about the current tax rates and bands on our website and how your tax is calculated at the section ‘How do I work out my tax?’. You can also read our separate section on your JPAC payslip to find out more about what is shown on your payslip and how your tax is calculated.
If you live in Scotland and are a Scottish taxpayer, different income tax rates and bands apply to your earned income. There is more information in our section on Scottish income tax.
The tax collected under the PAYE system is only ever an estimate of the actual tax you need to pay for the tax year. If the pay you receive in a month is more or less than you think it should be always check.
One of the most common reasons why tax underpayments happen is because an individual has two sources of income (employment or pension type) both of which have PAYE operated on them. This can be either at the same time or one after the other and the PAYE system deducts the personal allowance from both sources. You can only have one allowance and one set of tax rate bands in each tax year so if you have two sources of income at the same time you would normally expect to see a “BR” code used against your second source. You can find out more about multiple sources of employment type income on our webpage ’multiple sources of employment and/or pension income or state benefits’.
How am I taxed if I am working abroad?
Most service personnel working abroad will continue to pay tax in the UK as normal. The only exception may be if you were
- recruited overseas; and
- are not resident in the UK; and
- the maximum rate of pay for your grade is less than that of an executive officer in the UK civil service working in Inner London.
If you are a member or Officer of the Queen’s Gurkhas this exception does not apply to you and you will remain liable to tax in the UK.
There is more information on the webpage ‘residence and domicile for armed forces’.