Pay As You Earn tax or PAYE was introduced in 1944 due to the increasing number of tax payers and the necessity to have a simpler way to collect tax efficiently.
Before PAYE tax, tax was collected annually or twice annually. PAYE tax provided the treasury with a more regular flow of income with PAYE being deducted weekly or monthly.
The introduction of PAYE came hand in hand with tax form P45 which is issued to an employee every time they finish work. The P45 records a workers tax code number, pay to date and tax paid to date. The P45 is passed onto the new employer on commencement of work to allows the employer to accurately calculate PAYE tax for his/her employees.
PAYE and the P45 tax form are still used today.
PAYE was a massive change in the way the treasury collected tax seeing the Inland Revenue's first exercise in public relations when staff visited work places across the UK providing presentations and open forum discussions on PAYE, how to calculate PAYE and file PAYE tax returns to employers and employees. The Inland Revenue, and HMRC more recently, have maintained a positive interaction with employees and employers over the years. PAYE now has robust technological solutions to speed up payments to HMRC as well as ensuring more accuracy with tax calculations and tax returns. Most tax forms can now be completed and printed easily by employers completing PAYE tax returns for their employees including National Insurance deductions.
The table below provides example PAYE tax rates since PAYE was introduced in 1944.
| Tax Year | PAYE Rate |
|---|---|
| 1944 | 50%, Surtax was 48% for those with income in excess of £20,000 |
| 2011 | 20% £0 - £35,000, 40% £35,001 - £150,000, 50% Over £150,000 |
| 2012 | 20% £0-£34,370, 40% £34,371-£150,000, 50% Over £150,000 |
| 2013 | 20% £0-£32,010, 40% £32,011- £150,000, 45% Over £150,000 |