HMRC have published a consultation document on the proposed legislative changes to the collection of debt using the tax code, announced at Budget 2013, for comment by 5 September 2013.

HMRC aim to improve their collection of debts due to them through the PAYE system (known as coding out) by increasing the use of coding out, collecting more from higher earners while protecting lower earners, and extending the focus of coding out from just small debts to larger ones.

Coding out is one of HMRC's most effective debt collection methods. It involves HMRC assigning a new tax code to a debtor, which means that the normal deductions made from a taxpayer's earnings by their employer will be increased to include an amount that will pay off the sum they owe to HMRC over the year.

The coding out limit is currently £3,000 for anyone with a primary source of PAYE income of less than £30,000 a year. HMRC are proposing to replace this current single scale by a graduated scale of limits, intended to come into effect in 2015 by secondary legislation.

This would protect those on lower incomes, with no change to the maximum that could be coded out for those earning less than £30,000; and introduce a graduated, income related scale for earnings of £30,000 or more so that a maximum of £17,000 could be coded out for a person with earnings of over £90,000.

To ensure a consistent approach, HMRC also propose to extend the legislative 50% overriding limit, currently only available to K-codes, to all tax codes so that employers and pension providers do not make tax deductions in excess of 50% of an individual's relevant pay.

HMRC will also explore the potential to recover debts over more than one year, where appropriate, to make best use of the increased limits.

This consultation seeks views on the proposed legislative changes and applies to people who have a PAYE underpayment, a self-assessment (SA) balancing payment or an unpaid debt to HMRC or who represent them.

More details are available from Gov.uk HERE