This is a freeview 'At a glance' guide to the collection of tax debts via PAYE. 

Subscribers Click here for your detailed version of this guide. 

At a glance

HMRC may collect an individual's tax debts (including Tax Credit overpayments) by adjusting their Pay As You Earn (PAYE) tax code. Until 5 April 2015 the limit for coding out of tax debts was £3,000 but from 6 April 2015, a new scale applies.

The measure applies to taxpayers who have a debt with HMRC and:

  • Are an employee paying tax through (PAYE) and/or
  • Receive a taxable UK-based private pension.

From 6 April 2015, HMRC increased the amount of debt that it can recover through a tax code if annual earnings are £30,000 or more by applying a sliding scale to main PAYE income.

These changes apply to underpaid Self Assessment and Class 2 National Insurance debts and Tax Credit overpayments. Changes have been reflected in tax codes from 2015-16 onwards and HMRC will write to taxpayers before it collects any debts through their PAYE code.

Since April 2020, HMRC have adjusted codes during the tax year rather than waiting until the following 6 April, meaning that employees will see an immediate impact on their net pay. Individuals who do not wish HMRC to collect their tax debts in this way should advise HMRC and make arrangements to settle the debts accordingly.

The sliding income scale is:

Annual PAYE earnings Coding out limits
Up to £29,999.99 £3,000.00
£30,000.00 – £39,999.99 £5,000.00
£40,000.00 – £49,999.99 £7,000.00
£50,000.00 – £59,999.99 £9,000.00
£60,000.00 – £69,999.99 £11,000.00
£70,000.00 – £79,999.99 £13,000.00
£80,000.00 – £89,999.99 £15,000.00
£90,000.00 and above £17,000.00

 

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

There is an overriding limit that total deductions made through the PAYE code cannot exceed 50% of the employee’s relevant pay.

Employees can contact HMRC if they have any queries about their tax code.

Useful guides on this topic

Collecting tax debts via PAYE (Subscriber guide)
When can HMRC collect tax debts via PAYE? What are the limits?

What is the 2022/23 PAYE tax code?
What is the 2022/23 PAYE tax code? What do the different types of tax code suffixes mean?

Penalties: Late Payment (Subscriber guide)
What penalties are charged when tax is paid late?


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