Government response to 'How to improve HMRC's collection of debt: coding out'

18 February 2014

The government has published their response to the consultation ‘How to improve HMRC’s collection of debt: coding out’.

HMRC now plan to proceed with the debt collection elements of the proposed changes, and the extension of the 50 per cent overriding coding out limit to all tax codes. Following further analysis of the potential benefits, the government has decided not to introduce a graduated and increased limit for coding out PAYE underpayments and Self Assessment balancing payments.

The draft secondary legislation will be published for comment later this year. Work has also begun on the necessary changes to the SA and PAYE IT systems and processes and it is HMRC’s current intention to introduce the changes to apply from the 2015/16 year.


In July 2013 HMRC published a consultation ‘How to improve HMRC’s collection of debt: coding out' which sought views on its proposal to increase the amount, debt or underpayment that can be recovered through a PAYE tax code. The current coding out limit of £3,000 per annum was set in 2011 in order to strike a reasonable balance between allowing HMRC to recover debts, whilst protecting lower earners. But as it applies to all taxpayers regardless of their incomes, it represents a larger proportion of lower earners’ income compared to that of higher earners. And higher earners also tend to have larger debts, which are less likely to qualify for coding out.

Additionally the consultation also looked at the extension of the statutory safeguard to prevent PAYE deductions exceeding 50 per cent of individuals’ relevant pay and expanding its use across all tax codes and not just K codes as now.

The CIPP Policy team issued a survey to collect member views and we published our response last September. Whilst in broad agreement with the proposal to introduce graduated limits for the amount of debt which can be collected through PAYE, respondents had concern for those on low incomes. There was also disquiet over the likely increase in the number of enquiries employers will receive as a result of these proposals, and respondents suggested that HMRC look to improve the explanations in letters it issues to individuals.