Final answer:
PAYE, or Pay-As-You-Earn, is a system where employers withhold income tax and other contributions from an employee's wages, but itself is not a tax; it is a tax collection method. Employers also pay separate taxes based on the employee's wages to fund various social insurance programs.
Step-by-step explanation:
The statement “PAYE is not tax” may require some clarification. PAYE, which stands for Pay-As-You-Earn, is indeed a type of withholding tax. It is a system where employers deduct income tax and other statutory contributions like social security from an employee’s wages or salary before they receive their net pay. This system ensures that income tax is collected in a timely manner throughout the tax year, rather than requiring employees to pay a lump sum at the end of the tax year. However, this deduction is not the actual tax, but a method of collecting taxes due to the government. Therefore, the PAYE itself is not a tax but is a means of collecting the income tax an employee is obligated to pay.
On the contrasting side, taxes paid by an employer based on the employee's compensation are indeed taxes and are paid from the employer's own funds. They contribute to funding the social security system, unemployment, and disability insurance programs, among others, and are separate from the PAYE system.