HMRC PAYE update (Collecting Small Debts through PAYE)

Collecting Small Debts through PAYE

We told you in previous updates about the new regulations which took effect from 20 July 2011. This allows HMRC to collect up to £2,999 of tax owed through the PAYE tax code. We can let you know that we have now issued letters to individuals who fall into the selected criteria.

From April 2012 we will be able to collect debts up to the value of £2999.99 by amending the tax code of individuals in PAYE employment or receiving a UK-based pension.

We 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 us to discuss other payment options.

The first PAYE coding notices to include these changes will be issued from January 2012. A 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.

We may charge interest on any debt which remains outstanding or if the arrangement to code out is no longer an option. If this occurs then we will write asking for payment of any interest charges at a later date. We do not charge interest on tax credit overpayments.

We will not change tax codes in year to recover these debts or overpayments. They will always be included in the code issued for the start of the tax year, and will only be amended if we have been notified of a change in circumstances.

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

Further information can be found at: What could happen if you don't pay HMRC

RTI Communications to employers

Thank you to those who responded to my request last week. I have shared your suggestions with my colleagues and will let you know the outcome when we have considered them.

Technical Team

13 January 2012