Collecting overdue tax through tax codes

24 October 2014

HM Revenue and Customs (HMRC) is now increasing the amount of debt that they can recover through a tax code each year for those with annual earnings of £30,000 or more. To do this they will apply a sliding scale to the individual’s main PAYE income.

The HMRC announcement explains that they:

can currently collect debts of up to £3,000 by adjusting your Pay As You Earn (PAYE) tax code. HMRC refers to this as ‘coding out’. The effect of this is to recover the debt from your income, by increasing the amount that we deduct from your income during the tax year.

This applies if you have a debt with HMRC and:

· are an employee paying tax through (PAYE) and/or

· receive a taxable UK-based private pension

If your earnings are less than £30,000, there’s no change to the £3,000 coding out limit.

But following changes in the law, HMRC is now increasing the amount of debt that we can recover through your tax code each year if your annual earnings are £30,000 or more. To do this we will apply a sliding scale to your main PAYE income.

These changes will only apply to underpaid Self Assessment and Class 2 National Insurance debts and Tax Credit overpayments. Changes will be reflected in your 2015-16 tax code and we will write to you before we collect any debts through your PAYE code from April 2015.

The sliding income scale is:

Annual PAYE earnings

Coding out limits

Up to £29,999.99


£30,000.00 – £39,999.99


£40,000.00 – £49,999.99


£50,000.00 – £59,999.99


£60,000.00 – £69,999.99


£70,000.00 – £79,999.99


£80,000.00 – £89,999.99


£90,000.00 and above


The current £3,000 coding out limit will still apply to the collection of Self Assessment balancing payments and PAYE underpayments.

If you don’t want the debts to be included in your tax code, then you will need to pay the full amount you owe or speak to us to agree a suitable payment arrangement.