Collecting Tax Debts Through the Tax Code

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In July 2011, we reported that the PAYE Regulations had been amended to give HMRC the powers to recover tax debts of up to £3,000 by means of an adjustment to an employee’s tax code.  These powers are effective from tax year 2012/13.  Recoveries are at HMRC’s discretion and can be made without the consent of the taxpayer.  This is with the exception of Tax Credit debts, which can only be collected from PAYE income with the claimant’s agreement.

HMRC’s Weekly Employer Update dated 13 January 2012 contained confirmation of this and that they had identified the people who fall into their ‘up to £3,000’ criteria.  Also:

• HMRC began sending letters to ‘selected’ Self-Assessment debtors from August 2011
• Tax Credit claimants with overpayments were notified from October 2011

These letters explained the debts (in SA cases) or overpayments (in Tax Credit cases) plus gave individuals the opportunity to pay the amount or contact HMRC directly.

The purpose of the HMRC bulletin is to advise employers that the first PAYE coding notices under the new powers will start to be issued from this month.  If an overpayment is to be coded out, as per the Regulations, the employee’s P2 will show ‘Outstanding debt’ in the calculation area, together with a note explaining if this is SA debt, Tax Credit overpayment, or both.  They also advise that they will only ever code out these recoveries at the start of the tax year, never in-year.

Comment

How does this affect payroll?  Not from a direct perspective, that’s true.  However, the payroll department is often the first port of call for an employee with a tax code issue and it is beneficial for us to be reminded of this HMRC power, even if there is little that we can do about a personal tax issue.

Further Information

• HMRC Weekly Update 13 January 2012
• The Income Tax (Pay As You Earn) (Amendment) (No. 3) Regulations 2011
• Explanatory Memorandum to the Income Tax (Pay As You Earn) (Amendment) (No.3) Regulations 2011
• Payroll Help 09 July 2011

Tags: Debt collection, HRMC, PAYE Regulations, tax code, tax debts

This entry was posted on Saturday, January 21st, 2012 at 15:50 and is filed under Tax Debts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.