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Tax Tip

Changes to the amount HMRC can collect through your tax code.

We asked our Tax Manager, Stuart Coleman, about the changes that HMRC have made in relation to collecting overdue tax via your PAYE code

HM Revenue and Customs (HMRC) 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 deducted 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 can be recovered through your tax code each year if your annual earnings are £30,000 or more. To do this HMRC 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 HMRC write to you before they 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                                       £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 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 HMRC to agree a suitable payment arrangement.

If you need any help and advice with your PAYE, RTI or CIS arrangements, or are looking to outsource your Payroll Department, contact ABDS NOW to discuss how we can help.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail:

Brilliant with numbers   
Great with people  
Clear and precise with advice
Timely and cost effective 
In touch with issues that face our clients and
mindful of their long term strategic goals    

 Helping Your Business is Our Business

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