I have now had two letters from HMRC to say that clients do not have sufficient PAYE income to collect the 2009/10 underpayment via their code in 2011/12. When I phoned the Revenue this was explained to me that they cannot include a coding restriction if this would collect more than 50% of the tax they would pay without the restriction even though there is sufficient income. So the clients now have to pay the 2009/10 liability by early March, although they can make an arrangement to pay. I had never heard of this but I checked the PAYE manual and this appears to be the case. I have also been instructed that unless the client's PAYE income increases in future we have to check the box to say that the underpayment is not to be collected through the code.
Has anyone else come across this? It seems unfair to me as the underpayments arose due to coding errors by HMRC in 2009/10.