What is PAYE?
PAYE (Pay As You Earn) is HMRC's system for collecting Income Tax and National Insurance directly from employees' pay. Each payday the employer calculates the deductions using the employee's tax code and pays them to HMRC on the employee's behalf.
Since Real Time Information (RTI), employers report pay and deductions to HMRC on or before every payday via a Full Payment Submission. Getting the tax code and thresholds right is what keeps PAYE accurate.
In practice
An employee on tax code 1257L earning £3,000 a month has Income Tax and National Insurance deducted under PAYE, and the employer reports the figures to HMRC on payday via RTI.