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Collecting small debts through PAYE

by Tax Faculty Team on 10.01.2012 02:15

HMRC will start including debts in 2012/13 tax codes

 

From April 2012 HMRC will be able to collect debts of less than £3,000 by including them in the taxpayer’s PAYE code. This applies to both tax debts and tax credit overpayments.

 

Last year HMRC began writing to affected individuals so that they would have the opportunity to arrange to pay the outstanding amount by another method. HMRC will now start including outstanding debts in PAYE codes issued from January 2012. Such amounts will be included in the code issued at the start of the tax year but will not be added to the code in-year.

 

HMRC advises agents that if your client does not want their PAYE code to be reduced to collect the debt, you should contact HMRC on the agent’s dedicated telephone line. This would also apply if the amount is wrong or if the taxpayer is in hardship and needs time to pay.

 

HMRC has provided a detailed briefing note as follows:

 

“New regulations which took effect from 20 July 2011 allow HMRC to collect up to £2,999 of tax owed through the PAYE tax code. This briefing is to let you know that HMRC has now issued letters to individuals who fall into the selected criteria.

 

“From April 2012 HMRC will be able to collect debts up to the value of £2999 by amending the tax code of individuals in PAYE employment or receiving a UK-based pension.

 

“HMRC began sending letters to selected SA debtors from August 2011, and to tax credit claimants with outstanding overpayments from early October. The letter explained that their debts or overpayments may be collected by tax code adjustment from April 2012 and gave them a final chance to either pay in full or contact HMRC to discuss other payment options.

 

“The first PAYE coding notices to include these changes will be issued from January 2012. An SA debt or tax credit overpayment will be described on the P2 Annual Coding Notice as “Outstanding debt” with a note to say whether this is SA tax, a tax credit overpayment or both.

 

“Where some of a coded SA debt remains outstanding at the end of the year, for example; due to change of circumstances in-year, HMRC may charge interest on that remainder; or if the arrangement to code out is no longer an option normal interest rules will apply. If this occurs HMRC will write asking for payment of any interest charges at a later date. Interest is not charged on tax credit overpayments.

 

“Outstanding SA debts or tax credit overpayments will be included in the code issued at the start of the tax year and will not be added to the code in-year.

 

“If a client does not want their PAYE code to be reduced to collect the debt please contact HMRC on the agent’s dedicated telephone number as soon as possible. If they want to pay another way, information can be found at www.hmrc.gov.uk/payinghmrc

 

“Safeguards already exist to prevent excessive deductions from salary via PAYE; these will still apply to HMRC’s ability to code out debts.

 

“Information about recovering debts from PAYE codes is published on HMRC’s website: www.hmrc.gov.uk/payinghmrc/taxcode-vdp.htm