PAYE explained: A simple guide for UK workers (2026/27)

PAYE stands for Pay As You Earn. It's how HMRC collects Income Tax and National Insurance from anyone employed in the UK — including most agency and umbrella workers. Here's what you actually need to know.

What PAYE is (and isn't)

PAYE isn't a tax. It's the delivery system for tax. Every time your employer pays you, they calculate Income Tax and NI on the spot and send it straight to HMRC. You never see that money — it goes directly.

How the deductions work in 2026/27

National Insurance (Class 1, employee) sits alongside:

• 8% between £12,570 and £50,270
• 2% on anything above £50,270

Your tax code — the most important number on your payslip

The default code is 1257L. The digits (1257) mean HMRC is giving you £12,570 of tax-free income. The L means you're a standard worker. Common variants:

• BR — Basic Rate: taxes every pound at 20%. Usually a second job.
• D0 / D1 — 40% / 45% on everything. Usually a third income stream.
• 0T — No allowance at all. Something's wrong; call HMRC.
• K code — you owe HMRC (previous under-payment or benefit in kind).

What you can control

• Check your P60 in April — it's HMRC's summary of the whole year.
• If you had multiple jobs and think you overpaid, request a rebate via gov.uk/tax-overpayments.
• If you're on emergency tax after starting a new job, submit a P45 or new-starter checklist to fix it.

Clok uses these exact rates to project your take-home as you work — so you spot code issues before your payslip does.