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Collection of tax debts via PAYE codes: regulations

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Treasury orders and regulations made last week complete the statutory framework allowing HMRC to collect the majority of tax debts through the PAYE code, where the debtor is an employee or receives a UK pension, and raise the threshold for recovering ‘relevant debts’ in this way from £2,000 to £3,000.

‘Increasing the coding out threshold will permit more debts and underpayments to be collected in this relatively simple, cheap and less intrusive way. It also minimises the compliance burden on the taxpayer,’ HMRC said.

All respondents to a recent consultation were ‘supportive’ of increasing the threshold in ITEPA 2003 s 684(3A). HMRC will code out tax credit and income tax self assessment debts initially.

‘A “relevant” debt is a sum owed to HMRC under or by virtue of an enactment or under a contract settlement, and can be recovered from PAYE income at HMRC’s discretion and without the debtor’s consent,’ HMRC said. ‘Tax credit debts are excluded from these provisions, but can be recovered from PAYE income with the claimant’s agreement.’

A publicity programme is in place to ensure that taxpayers, employers and advisers are aware of the change, they added, and additional detail and contact numbers for queries will be included on the P2 coding notices to be issued early in 2012.

The statutory instruments published last week are:

  • The Finance Act 2009 (Consequential Amendments) Order, SI 2011/1583
  • The Income Tax (Pay As You Earn) (Amendment) (No.3) Regulations, SI 2011/1584
  • The Income Tax (Earnings and Pensions) Act 2003 (Section 684(3A)) Order, SI 2011/1585