The tax authorities will have new powers set in law from October 2014 to increase the limits on coding out statements for PAYE so that employees could potentially have half their earnings over £30,000 clawed back by HMRC to settle tax debts
The new PAYE coding out limits will come into force from 6 April 2015 and means that those earning over £90,000 could effectively have up to £17,000 clawed back from their earnings using the PAYE system.
The current limit of £3,000 per year for all tax debtors will be replaced with a graduated scale introducing higher limits for those with higher earnings - or up to a £17,000 limit for those earning £90,000 or more.
However, the tax authorities will not be able to recover more than 50% of an individual’s annual earnings through the coding out system, which automatically deducts the debt through the PAYE system.
This essentially extends the legislative 50% overriding limit, which is currently only available to K-codes.
The debt recovery would apply to the collection of tax debts, self assessment (SA) balancing payments and PAYE underpayments. It can be used by employers in respect of an employee for the tax year 2015-16 and subsequent tax years.
HMRC said its IT system would also be upgraded to allow splitting of debts across different years.
The plans come after a consultation, which ran from 11 July 2013 to 5 September 2013, which proposed to replace the current single scale for the collection of debts through PAYE – known as coding out of debt.
These Regulations amend the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682) (‘the principal Regulations’) which make provision for the assessment, charge, collection and recovery of income tax in respect of all PAYE income.
The amendments are made in conjunction with the Income Tax (Earnings and Pensions) Act 2003 (Section 684(3A)) Order 2014 which increases the coding out limit in respect of relevant debt from £3,000 to £17,000.
Total amount of debt that may be recovered by HMRC through PAYE coding out
|
The expected amount of PAYE income of taxpayer in the tax year for which the code is determined |
Total amount of debt that may be recovered from taxpayer in a tax year |
|
Less than £30,000 |
No more than £3,000 |
|
£30,000 or more but less than £40,000 |
No more than £5,000 |
|
£40,000 or more but less than £50,000 |
No more than £7,000 |
|
£50,000 or more but less than £60,000 |
No more than £9,000 |
|
£60,000 or more but less than £70,000 |
No more than £11,000 |
|
£70,000 or more but less than £80,000 |
No more than £13,000 |
|
£80,000 or more but less than £90,000 |
No more than £15,000 |
|
£90,000 or more |
No more than £17,000 |
The amended legislation is available here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/336809/codingout-hmrc-regs.pdf