How Do You Calculate PAYE?

How Do You Calculate PAYE?

1 Answer

  1. There are two basic ways to calculate PAYE which are periodic and averaging and annual equivalent. The periodic tax basis calculates tax on each payslip in isolation using the monthly tax tables while tax averaging takes into account an employee’s total income for the entire tax year to date (YTD) and uses an annual equivalent to calculate tax.
    The basic calculation involves working out an annual equivalent (annualising the YTD income) on which tax is calculated. This tax amount is then de-annualised to get the tax for the period employed. The annual equivalent is the projected amount of income that an employee would earn in a year based on their YTD income*. Effectively, this is the amount of income an employee would earn if their average monthly income for the YTD period was multiplied by 12.
    You can learn more about it through this video.

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