HMRC recover debts of up to £17,000 though PAYE codes


From April 2015, HMRC bought in a new legislation which gave them the power to collect debts of up to £17,000 through an individual’s tax code, even without the individual’s consent.

From the 2015 / 2016 tax year, this new method of debt collection referred to as ‘coding-out’ saw an increase from the previous collection limit of £3000 for earnings less than £30,000.

The upper limit for how much debt can be coded out is linked to the tax payer’s income. There is a graduated scale so that the maximum £17,000 can be coded out for a person with earnings over £90,000. There is no change for those with earnings less than £30,000 a year, for whom the maximum remains at £3000. Earnings in this context means earnings from the main source of income paid through PAYE.

The graduated limits are:

Annual PAYE Earnings       Coding out limits
Up to £29,999.99 £3,000
£30,000 - £39,999.99 £5,000
£40,000 - £49,999.99 £7,000
£50,000 - £59,999.99 £9,000
£60,000 - £69,999.99 £11,000
£70,000 - £79,999.99 £13,000
£80,000 - £89,999.99 £15,000
£90,000 and above £17,000

This scale is applicable to unpaid self-assessment debts, Class 2 NIC debts and Tax Credit overpayments, while a £3,000 coding out limit will still apply for self-assessment balancing payments and PAYE underpayments.

To ensure a consistent approach and to safe-guard employees from excessive deductions from their pay, HMRC extended the ‘legislative 50% overriding limit’ to include all tax codes and not just ‘K codes’. This limits any deductions to a maximum of 50% of an individual’s relevant pay.

HMRC use this power to code out debts only where they have not been voluntarily paid. They first write to you to explain that your Tax Code will change and give you an opportunity to settle your debt in another way. If your debt does appear in your Tax Code, it will be under the heading ‘Outstanding Debt Restriction’. If you do not want debt to be included in your tax code, you will need to either pay the full amount you owe or contact HMRC to arrange a payment plan.

If you receive a new tax code and would like us to review it, please get in touch.

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You The Taxpayers to face the highest Tax Burden for 30 years


The Institute for Fiscal Studies have recently claimed that UK taxpayers are facing the highest Tax Burden for 30 years.

Over 37% of Britain’s National Income will be drawn from your tax receipts for the first time since 1986. These tax increases derive from a number of new legislations such as higher tax on dividend income, increase in tax on insurance premiums, higher vehicle excise duty and a new restriction on pension contributions for those on very high incomes.

Hundreds of thousands of people, are suddenly paying a higher rate of tax as the threshold has failed to keep up with rising inflation, however the government have pledged to increase the threshold at which the higher rate of income tax is paid to £50,000 by 2020.

The report has likewise said that £17bn of tax rises could be needed to contribute to bridging the gap between government income and outgoings.

Income tax rates have risen steadily over recent years, meaning higher earners are paying an ever increasing proportion of the state’s total tax receipts. For example, the comparable rates for Income Tax Allowances and Income Tax Rates across the 2016 / 2017 and 2017 / 2018 are as follows:

  • The personal allowance will increase from £11,000 in 2016 / 2017 to £11,500 in 2017 / 2018.
  • The basic rate limit will be increased to £33,500 in the new tax year from the £32,000 as it currently stands and as a result of this, the higher rates threshold will increase to £45,000 from April 2017.

We can see this as a positive step towards the government’s commitment to raising the personal allowance to £12,500 by the end of this parliament. This will rise in line with the consumer prices index measure of inflation, rather than the National Minimum Wage. Chancellor Philip Hammond has said that this will bring the way the allowance is increased into line with the higher-rate threshold.

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