A consultation seeking views on proposed changes to the limits for ‘coding out’ of debts and tax underpayments which is intended to improve the collection of tax debt was undertaken recently.

The consultation sought views on the proposed legislative changes to the collection of debt using the tax code, announced at Budget 2013. The proposal is that HMRC will improve its collection of debts due to HMRC through the PAYE system (known as coding out) by increasing the size of debts that can be recovered through coding out from those with higher incomes.

Chapter 3 of the consultation explains the proposals in more detail but broadly HMRC is proposing to replace the current single scale with a graduated scale of limits. This would mean:

• no change to the maximum of £3,000 that can be coded out for those earning less than £30,000; and
• introducing a graduated, income related scale for earnings of £30,000 or more so that a maximum of £17,000 can be coded out for a person with earnings of over £90,000.

Earnings in this context would mean earnings from the source associated with the main source of income paid through PAYE.