50% overriding limit for PAYE tax deductions

03 September 2014

From 6 April 2015, the 50% overriding limit that currently applies to K codes will be extended to all tax codes. HMRC have issued new Q and A guidance providing further detail.

The HMRC statement says:

The existing process for operating K codes remains unchanged. All other codes, where operating the code cumulatively will result in a tax deduction of 50%, should be operated on a week1/month1 (non cumulative) basis.

Q. Why extend the 50% limit to all codes?

A. HMRC is introducing new limits to the amount of debt collectible through a tax code. To ensure employees have no more than 50% of their pay deducted, we are extending the 50% overriding limit (currently applicable to K codes only) to all tax codes from 6 April 2015. This statutory safeguard will support the checks already within HMRC systems which mitigate the risk using incorrect tax codes.

Q. Does this apply to all tax codes including D codes, BR, 0T as well as suffix codes?

A. Yes, the change applies to all suffix codes, prefix codes and letter only codes and the employer will be responsible for operating the 50% overriding limit. Non K codes that hit 50% limit should be changed to a week1/month1 basis – unlike with K codes there is no requirement for an employer to account for or to attempt to collect any shortfall of tax.

Q. Is there a need to account for tax not collected on a non-K code on a working sheet or via RTI?

A. No, RTI only needs details of the tax deducted each pay period along with the YTD figure.

Q. Will there ever be different overriding limits dependent on the tax code?

A. There are currently no plans to vary the overriding limit

Q. Will Scottish tax codes follow the same rules?

A. Yes. The principles of the 50% deduction rule remain the same whether Scottish rate or rest of the UK (rUK) rate apply. The Scottish Government may exercise their powers and vary the Basic Rate, Higher Rate and Additional Rate but the 50% overriding limit will continue.