With effect from the 2015/16 tax year, HMRC will be able to adjust employee’s tax codes by a greater amount than previously. HMRC are introducing a “graduated income-based” scale, which will apply where an employee has a primary source of PAYE income of at least £30,000 or more each year.

There will be no change to the current £3,000 limit for individuals with annual earnings less than £30,000. The current £3,000 coding out limit will also still apply for Self-Assessment balancing payments and PAYE underpayments. These changes will only be applied to recover any unpaid SA and Class 2 NIC debts and Tax Credit overpayments from individuals.

PAYE coding adjustments of this nature reduce the individual employee’s entitlement to a personal allowance (the 2015/16 personal allowance is planned to be £10,500), meaning that the employee will pay off the amount they owe over the course of the tax year, rather than having to pay a significant one off amount.

This will provide the individual with more time to pay off the debt and HMRC with more certainty that the debt will be paid off.

HMRC have confirmed that, to ensure a consistent approach and to safeguard employees from excessive deductions from their pay, the “Legislative 50 per cent overriding limit” will be applied to all tax codes and not just K codes. This means that deductions taken from pay cannot exceed 50% of the individual’s earnings.

More information is available at Advance notice for Agents – Increases to the amounts collected by PAYE Tax code and Increases to the amount of debt that can be recovered by PAYE Tax code which are both available on the HMRC website.