Most debts due to the HMRC can be recovered by making deductions from the debtor’s PAYE income, called “coding out”. This may be done with the taxpayer’s agreement. In addition, HMRC has the power to collect tax debts in this way without the taxpayer’s consent.
Currently the maximum amount which can be coded out is £3,000. This will increase to £17,000 from 6 April 2015. The limits will be applied on a graduated scale linked to earnings from the primary PAYE source, so that the £17,000 maximum applies to people earning over £90,000 but there is no change to the £3,000 limit for those earning less than £30,000, (see table below).
A second change is the extension to all tax codes of the rule that only a maximum 50% of pay can be taken away in deductions. At present this just applies with K codes.
The regulations also make specific provision for the coding out of child tax credit and working tax credit overpayments.
HMRC will write to you before debts are included in 2015/16 tax codes. Taxpayers who do not want debts collected in this way are urged to either pay or contact HMRC to agree a payment arrangement.
HMRC does not say if the letters to taxpayers will also be copied to us agents, so make sure you tell us if you get such a letter. That way we can sort things out if you do not wish the debt to be recovered through your PAYE code, and not least so we can check that the amounted demanded is correct.
The graduated limit would apply for those with a primary source of PAYE income of £30,000 or above a year. It applies to tax debts but excludes PAYE underpayments and SA balancing payments.
|Earnings PA £||<30K||30-40k||40-50k||50-60K||60-70K||70-80K||80-90K||>90K|
|Coding out limit £||3,000||5,000||7,000||9,000||11,000||13,000||15,000||17,000|
The coding out of a tax underpayment or debt due to HMRC does not result in a tax deduction of more than 50 per cent of gross pay for the pay period.