It is I’m sure, common knowledge, that it has become increasingly important that HMRC collect tax owed in the most effective way possible to ensure that money is available to fund public services, says Diana Bruce of the CIPP.
We have seen the introduction of real time information (RTI) this year which although driven by the new Universal Credit system, is ensuring more employees pay the right tax at the right time.
‘Coding out’ is used by HMRC to recover tax credit and self assessment (SA) debts where the taxpayer has not paid voluntarily. It was introduced in 2011 and is now an established method of debt collection. HMRC assigns a new tax code to the debtor meaning that the normal deductions made from a taxpayer’s earnings by their employer will be increased to include an amount that will pay off the sum they owe over the tax year.
Coding out can also be used where there has been an underpayment of PAYE or an amount owing under a taxpayer’s SA tax return if it is below the £3,000 limit. In these cases, an individual will often be able to pay back the underpayment for the current or earlier tax years through an adjustment to their tax code. The current coding out limit of £3,000 per annum was set in 2011 in order to strike a reasonable balance between allowing HMRC to recover debts, while protecting lower earners. But as it applies to all taxpayers regardless of their incomes, it represents a...