Money Matters (Part 8) - Changes to Collecting Overdue Tax

HM Revenue and Customs (HMRC) are currently able to collect people’s debts of up to £3,000. This is done through a system known as ‘coding out’, where HMRC adjust your Paye as You Earn (PAYE) code. By doing this, they recover the debt from your income by increasing the amount that they deduct from your income during the tax year.

This only applies if you have a debt with HMRC and:

·      Are an employee paying through the (PAYE) and/or

·      Receive a taxable UK-based private pension.

If you are earning less than £30,000, there is no change to the £3,000 coding limit. However, due to the recent changes in law, HMRC is now increasing that amount of debt they can recover through a person’s tax code each year if their annual earnings are £30,000 or more.

The changes will only ever apply to underpaid Self Assessment and Class 2 National Insurance debts and Tax Credit overpayments. These changes will also be reflected on your 2015-16 tax code and HMRC will always write to someone before they collect any debts through their PAYE code from April 2015.

All debts are calculated through a sliding scale, as shown below:

Annual PAYE earnings	Coding out limits
Up to £29,999.99	£3,000.00
£30,000.00 – £39,999.99	£5,000.00
£40,000.00 – £49,999.99	£7,000.00
£50,000.00 – £59,999.99	£9,000.00
£60,000.00 – £69,999.99	£11,000.00
£70,000.00 – £79,999.99	£13,000.00
£80,000.00 – £89,999.99	£15,000.00
£90,000.00 and above	£17,000.00

The current £3,000 coding out limit will still apply to the collection of Self Assessment balancing payments and PAYE underpayments.

If you don’t want the debts to be included in your tax code, then you will need to pay the full amount you owe or speak to HMRC to agree a suitable payment arrangement.