Code Breaking

More tax arrears could be collected through PAYE codings

Currently HMRC can only collect tax debts, i.e. PAYE underpayments and Self Assessment balancing payments, of up to £3,000, through a taxpayers PAYE coding. This is done by reducing the individual’s code number and collecting the tax owing gradually throughout the tax year. This limit applies across the board irrespective of how much a person earns.

In a bid to improve HMRC’s debt collection the department is considering increasing the £3,000 limit to enable them to collect larger tax debts. The limits would be imposed by reference to the taxpayers earnings as follows:

Annual PAYE earnings (£) Code limit (£)
< 30,000

3,000

30,000 – 40,000

5,000

40,000 – 50,000

7,000

50,000 – 60,000

9,000

60,000 – 70,000

11,000

70,000 – 80,000

13,000

80,000 – 90,000

15,000

> 90,000

17,000

If implemented the new limits would become effective from 2015 and apply to debts as well as Self Assessment and tax underpayments. Where an individual prefers to pay any tax arrears direct to HMRC rather than suffering a large reduction in their PAYE code number then they will have to propose terms that are acceptable to the Revenue.

Tax deducted under a code number prefixed with a K cannot exceed 50% of a persons earnings and HMRC proposes to extend this limit to all code numbers to ensure that no more than 50% of an individual’s pay can be eaten up by tax owing.  

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