At source” tax refers to collecting tax directly from the source of income, rather than requiring individuals to file a tax return and pay the tax owed later. For example, in the UK, the PAYE system is used to collect income tax and NICs at source from employees’ pay before it is paid to the employee. Under the PAYE system, employers are responsible for deducting the appropriate amount of tax and NICs from their employee’s pay based on information provided by the employees and the HM Revenue and Customs (HMRC). The employer then pays the collected tax and NICs over to HMRC on behalf of the employees. This helps to ensure that employees pay the correct amount of tax on their income and reduces the administrative burden on individuals by having the tax collected through the payroll process.

HMRC provides employees with a tax code and updated PAYE systems of the employer, which indicate how much tax they should pay based on their annual income, allowances, and deductions. HMRC determines the tax code, which is reviewed periodically to ensure that the correct amount of tax is being deducted. PAYE is an essential part of the UK’s tax system, as it helps to ensure that employees pay the right amount of tax on their income, and it helps to reduce the administrative burden on individuals by having the tax collected through the payroll process.

Another form of deduction at source comes under the CIS, where contractors are responsible for deducting money from subcontractors’ payments and paying it over to HM Revenue and Customs (HMRC) on behalf of the subcontractors. The amount deducted is based on the subcontractor’s CIS status and the deduction rate specified by HMRC. Subcontractors can apply to HMRC for gross payment status, meaning they will receive their full payment without any deductions for tax and NICs. However, they will still be responsible for paying their tax and NICs directly to HMRC.