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HMRC internal manual

Debt Management and Banking Manual

HM Revenue & Customs
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Pre-enforcement: coding out: background

Legislation contained in Finance Act 2009 provided HMRC with the ability to collect debts less than £2,000 on a mandatory basis by amending a taxpayer’s PAYE code where the taxpayer is in Pay as You Earn (PAYE) employment or in receipt of a UK-based pension. We call this process coding out.

Tax credit (TC) debts cannot be collected on a mandatory basis but can be collected on a voluntary basis through coding amendment.

In 2014 amendments to the Income Tax (Earnings and Pensions) Act 2003 and the Income Tax (Pay As You Earn) Regulations 2003 meant that from April 2015 a graduated scale was introduced so we can code out debts up to £17,000. The graduated scale is set out at DMBM618090.

The graduated scale does not apply to SA balancing payments or PAYE underpayments which are limited to £3,000.

DMB uses a campaigns approach and pursues debt based on risk factors, debt values and previous payment history. Collecting debts by amending the PAYE code is a useful addition to the campaigns strategy for pursuing debt.

The functionality to collect debts in this way has been available from October 2011.

Self Assessment (SA) and Tax Credit (TC) debts are selected in IDMS as part of our campaigns process and details of the debts sent to National Insurance and PAYE Service (NPS). This is a fully automated process.

From October 2013, Class 2 National Insurance Contributions (Class 2 NIC) and Share Fisherman debts suitable for coding out are selected by (NPS). NPS will check to see if the taxpayer is in Pay As You Earn (PAYE) employment or in receipt of a UK-based pension and if so, it will check if the debt can be collected by amending the taxpayer’s PAYE code.

All references to Class 2 NICs also apply to Share fisherman debts.