HMRC new powers to deduct tax through PAYE

HM REVENUE & CUSTOMS will be able to deduct up to £17,000 per year of tax debts from high earners’ through PAYE under powers coming into force this week. The move represents a significant increase on the previous annual tax collection ceiling, which was previously set at £3,000.

HMRC sought to increase the limits on the debt it can collect through PAYE because it was “inefficient and unfair” to be forced to use more expensive debt pursuit methods when collecting larger sums. It added the new rules would also potentially help debtors on higher incomes as they would be able to stagger their debts over the tax year, instead of having to pay upfront.

The increased threshold is expected to bring in an additional £115m in 2015/16. It will not affect those earning below £30,000, who will still operate under the £3,000 limit. An incremental scale will be in place, with £17,000 limit reserved for those earning £90,000 or more.

A spokesman for HMRC said: “Taxpayers welcome the option to have tax debt collected by instalment. This is a very longstanding feature of the payroll system but the increase in the current threshold will allow more tax debts to be paid in this way.

“We will issue letters advising taxpayers that collection through their PAYE tax code is being considered to collect their outstanding arrears. The amount of debt to be collected through the PAYE code will then be shown on the Annual Coding Notice (P2) which is sent to the taxpayer between January and March 2015 before the new tax year starts on 6 April 2015.”

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