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HMRC internal manual

Debt Management and Banking Manual

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

Legislation was introduced in Finance Bill 2009 to enable HMRC to collect all tax debts through PAYE, provided the debtor is in employment or in receipt of a UK-based pension.

Section 110 of and Schedule 58 to Finance Act 2009 inserted provisions into section 684 Income Tax (Earnings and Pensions) Act 2003 (ITEPA) to enable HMRC to collect ‘relevant debts’ through the PAYE system. ‘Relevant debts’ will initially comprise SA debts, although the term encompasses all tax debts payable under an enactment or contract settlement.

Section 29 Tax Credits Act 2002 relates to recovery of overpaid tax credits. Section 29(5) states that where a notice of overpayment has been given to the claimant then PAYE regulations can apply to recover the sum as if it were an underpayment of income tax. Those regulations permit an underpayment of income tax to be recovered via the tax code, provided the person is in employment or in receipt of a UK-based pension. However, the tax credit debtor does have the opportunity to object to having their debt coding out.

Secondary legislation has now been laid to fully implement the Finance Act 2009 legislation and enable HMRC to start coding out debts. This secondary legislation made various amendments to ITEPA and the Income Tax (Pay As You Earn) Regulations 2003 to take account of ‘relevant debts’ in order that the Finance Act 2009 legislation could take effect. The regulations provide cover for HMRC to identify suitable debts for coding action and to send out coding notices to customers from 2012.

The above legislation also covers Scottish and Northern Ireland cases.