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From April, HMRC will be able to collect small debts up to £3,000 through taxpayers’ PAYE codes.
Regulations came into force on 20 July 2011 to permit the additional method of recovery for self assessment debts and tax credit overpayments. The taxman began last summer to send letters to selected self assessment taxpayers with outstanding debts, and then to tax credit claimants with overpayments due for direct recovery.
The letters notify recipients that money owed can be collected through their pay by reducing their PAYE code. A statement of liability is enclosed, showing a summary of the debts, interest accrued to date, and the daily interest accrual rate. Accrued interest will be dealt with separately, and will not be collected through the tax code reduction.
If the taxpayer does not wish to have his or her code reduced, the individual’s tax adviser should contact the Revenue to discuss payment by an alternative method. This is also the case if having the debt coded out would cause hardship.
HMRC say the same safeguards that exist to prevent excessive deductions from salary via PAYE will apply to the coding out of debts.
There is a priority order for including in a tax code sums owed: PAYE underpayments and income tax liabilities resulting from information in a self assessment return will be allocated in the code ahead of debts.
