PAYE Explained: A Complete Guide for UK Employers

Pay As You Earn (PAYE) is the system HMRC uses to collect income tax and National Insurance contributions from employees' pay before they receive it. As an employer, you are responsible for deducting the correct amounts, paying them to HMRC, and reporting on time through Real Time Information (RTI). Getting this wrong is not a minor administrative issue — penalties start accruing immediately.

Every employee has a tax code. That code tells you how much of their income is tax-free and at what point higher rates kick in. When a new employee joins, they bring a P45 from their previous employer — if they have one. If they do not, you take them through a starter checklist to determine which tax code to apply. Getting this step wrong leads to under- or over-deduction, which requires correction later.

Mellow's payroll engine calculates PAYE, NI, and statutory pay automatically for each employee every pay period. Tax codes are updated when HMRC issues a P6 or P9 notice — the engine applies the change from the next payroll run. RTI submission happens via your Government Gateway credentials directly from within Mellow. You do not need a payroll bureau or a separate product. The numbers are calculated, the submission is made, and the payslip is generated in one process.