HMRC are able to recover certain overdue tax debts through an individual’s PAYE tax code. This is referred to as ‘coding out’ and is used by HMRC to collect unpaid Self Assessment, Class 2 NIC, tax credit overpayments, self assessment balancing payments and PAYE underpayments.
The maximum amount that HMRC can currently collect through an individual’s PAYE code is £3,000, regardless of their annual PAYE earnings. This will not change for taxpayer’s with annual earnings of less than £30,000, however, from 6 April 2015 a graduated scale will apply for amounts earned above that as follows.
|Annual PAYE earnings ||Coding out limit |
|Up to £29,999.99 || £3,000|
|£30,000 - £39,999.99 || £5,000|
|£40,000 - £49,999.99 || £7,000 |
|£50,000 - £59,999.99 || £9,000|
|£60,000 - £69,999.99 ||£11,000|
|£70,000 - £79,999.99 ||£13,000|
|£80,000 - £89,999.99 ||£15,000|
|£90,000 plus ||£17,000|
Tax debts collected above the current £3,000 limit will be restricted to unpaid Self Assessment, Class 2 NIC and tax credit overpayments and HMRC will notify taxpayers of the amounts to be collected through coding out in advance. The new limits will not apply to Self Assessment balancing payments or underpaid PAYE.
There will also be a statutory provision such that no more than 50% of an employees pay can be coded out.