PAYE is to be applied to the earnings of an office or employment which are paid by the employer to the employee. For these purposes, ‘earnings’ are defined by ITEPA 2003, s. 62. PAYE is applied to the assessable earnings after deducting allowable superannuation contributions. The ‘employer’ and ‘employee’ are defined as the parties to a contract of service or as the person under whom an office-holder holds office and the office holder (ITEPA 2003, s. 4 and 5).


Guidance on what is to be included as ‘pay’ for the purposes of the operation of PAYE is given in HMRC’s Employer’s Further Guide to PAYE and NICs (CWG2). The Guide lists various items which are not to be included in ‘pay’ for tax deduction purposes.


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