Collection by PAYE tax code adjustment

If you owe tax and are struggling to pay your tax in a lump sum you may be able to choose to pay through the PAYE system. This means is that you can have your tax paid by way of an adjustment to your PAYE tax code. Assuming, of course, that you have a continuing income from employment.

The process is this. The tax owed is the taken by an adjustment to your PAYE tax code (or coded out) so that you pay it off monthly or weekly depending on how often you are paid with the idea that all of the tax will be paid by the end of the tax year. For example, if you owe tax for 2012/2013 you can choose to have this collected by way of an adjustment to your tax code in 2014/2015. 

Time limits

In the above example, HMRC must also be notified before 31^st December 2013 or they may not make the adjustment.

Limtations

In order to protect you from paying unreasonable tax deductions HMRC will not take tax through your tax code if you don’t have enough PAYE income to enable the collections. They also will not take the tax this way if more than 50% of your PAYE income will be taken to pay it, or if you would end up paying twice as much tax as you normally would each time you get paid. There is also a maximum amount of £3,000 tax that can be paid through a tax code adjustment. If the tax cannot be paid through your tax code, HMRC will write to you with alternative methods of payment.

When tax is taken through your tax code you should receive a PAYE Coding Notice which will display what changes have been made to your tax code and why.

Other points to note

There are occasions where HMRC will choose to collect other underpaid taxes through your tax code,

For example, from April 2014 HMRC may collect outstanding Class 2 National Insurance Contributions in addition to tax if you receive PAYE income. If you do not pay or contact HMRC after receiving a payment request, they will send a coding notice between January and March 2014 showing how they will collect the outstanding National Insurance.

If you require more information on the above, you can follow this link, or get in touch with us to see how we can help.

Mark