What is PAYE?

In practice, in the UK

PAYE puts the administrative burden of calculating and collecting income tax on the employer rather than the employee, using a tax code HMRC issues for each employee to determine how much to deduct from each payment. The code reflects an individual’s personal allowance and any adjustments HMRC has made for other income, benefits or previous under- or over-payments, which means two employees on the same salary can have noticeably different take-home pay if their tax codes differ. Employers are not passive collectors in this system: getting someone’s tax code wrong, applying it late, or mishandling a starter or leaver incorrectly all shift the burden of a subsequent correction onto the employee, HMRC, or both.

In Odoo

Payroll processing, including PAYE deductions, generally runs through a dedicated payroll module or an external payroll provider connected to Odoo, rather than through the general accounting ledger directly. What Odoo needs from that process is a clean journal posting of the payroll run — gross pay, PAYE, National Insurance and net pay all reaching the right nominal accounts — so that payroll and the general ledger agree rather than drifting apart over time.

Common mistakes

• Applying an out-of-date tax code after HMRC issues a new one for an employee.
• Mishandling a new starter’s tax code because the correct information was not obtained before the first payment.
• Letting the payroll journal and the general ledger fall out of step because postings are made inconsistently between pay runs.