Collecting tax debts through the tax codeMonday, April 18th, 2011
HMRC plans to start automatic collection of tax debts under PAYE from April 2012.
HMRC has issued a Technical Discussion Paper in order to finalise the statutory changes required to allow tax debts of up to £3,000 to be collected automatically under PAYE by means of a tax code adjustment. This process, known as “coding out” is not currently automatic and has a £2,000 ceiling.
The Paper includes the draft text of the legislative changes to allow HMRC to start identifying relevant debts in Autumn 2011 and begin collecting the debts from April 2012. HMRC sees this process as “a cheap, simple, convenient and straightforward method for clearing outstanding debts”, allowing it to concentrate on the recovery of high-value debts.
Almost all kinds of tax debts will be able to be collected automatically in this way, with the specific exception of tax credit debts. If HMRC wishes to collect a tax credit debt in this way, the claimant will have the opportunity to object. In addition, all taxpayers will have the opportunity to query their tax code before it is applied.