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HMRC internal manual

Debt Management and Banking Manual

From
HM Revenue & Customs
Updated
, see all updates

Pre-enforcement: coding out: class 2 NIC debts: handling customer contact

The lines to take and common questions and answers for the Class 2 NIC Helpline are outlined in the following frequently asked questions.

1.   How much do I need to pay to stop my class 2 NIC debt from going to a Debt Collection Agency (DCA)? You need to pay all the arrears you owe to stop us collecting these through a Debt Collection Agency (DCA).
     
1.   How much do I need to pay to stop my class 2 NIC debt being coded out? You need to pay all the arrears you owe to stop us collecting these through your tax code.
1.   Can I choose to have my outstanding class 2 NIC debts coded out? You need to pay all the arrears now. If you do not, we will decide whether any class 2 NICs arrears will be collected through your tax code or DCA. Not all customers that have arrears will be able to have this collected through their tax code and these arrears may be referred to a Debt Collection Agency.
Note: Taxpayers do not have the right to request that a debt is collected by amending their code. This is a further method of recovering debt which HMRC can opt to use if we have not received payment in full.      
  1.   Will coding out impact on my pay? If your tax code is adjusted to collect these arrears, there will be an impact on your pay. The debt will be collected throughout the year.
  1.   How will you code out my Class 2 NIC debt? We will adjust your annual tax code to collect the amount of arrears owed. This means that the debt you owe will be collected over the tax year.
  1.   Can I pay my class 2 NIC debt by instalments instead of through my tax code? No. We are unable to accept instalments for this debt. You should pay as much as you can off the arrears still owing. We will look at your class 2 NICs arrears later this year and decide if we will be able to have this collected through your tax code and if the arrears are passed to a DCA.
  1.   Will coding out impact any claims to benefit? If we collect the class 2 NICs you owe through your tax code then it will not be available to be used in benefit calculations until after the end of the tax in which it is collected. This will be after the deductions have been checked and your records updated.

For example, if we collect the arrears during the 2014-15 tax year then these will not be available in benefit calculations until after 5 April 2015.

If you think that you may need to claim benefit before then you should pay what you owe now.    
  1.   Where can I find more information on coding out?
  or
       
  1.   Can I pay some of the debt off and have the rest coded out? You should pay off as much as you can now. We will look at your class 2 NICs arrears later this year and decide if we will be able to have this collected through your tax code and if the arrears are passed to a Debt Collection Agency.
  1.   How will I know that my debt is going to be collected by amending tax code? The amount of debt to be collected through the PAYE code will be shown on the Annual Coding Notice (P2). This will be sent to you between January and March 2014 before the new tax year starts on 6 April 2014.
  1.   I can not afford to pay through my wages. You need to pay all the arrears now. If you do not, we will decide whether any class 2 NICs arrears will be collected through your tax code as set out in the notification.

The PAYE coding rules are designed to protect you from excessive deductions. One of these is that no more than £2,999.99 in any year can be collected by amending the tax code. HMRC is also prevented from collecting the debt through your code where you:

  • do not have enough PAYE income to enable HMRC to collect the sum due
  • would pay more than 50 per cent of your PAYE income in tax
  • would pay twice as much tax as you normally do each time you receive pay or pension.       
      1.   When will the first debts be collected by amending the tax code? The first debts will be included in the 2014-15 tax code from 6 April 2014.
      1.   Taxpayer objects to having the debt coded out as a method of debt recovery. Taxpayers cannot object to having the debt included in their code unless they make other arrangements to pay.
      1.   Will some means-tested benefits be affected if take home pay is reduced? Means-tested benefits can be affected by reductions in take home pay. This varies depending on the type of benefit. Anyone who is receiving any means-tested benefits may want to contact their benefit provider for advice.
      1.   Why haven’t you coded out full tax years of debt? The coding out programme has been applied to full years of outstanding debt only excluding the current tax year. Where less than a full year has been requested, this will be as a result of periods of no class 2 NIC liability held on the customer’s record.
      1.   All my arrears have been coded out and I want to claim benefit -can I pay for the relevant year only and earlier years remain coded out? If a customer has a period of coded out debt and they need to pay part of the arrears to allow then to claim benefit, they will have to make a separate payment for this debt and specifically state what period the payment is for. We will not use any of the money that has been collected through coding out. The separate payment made will flow through to the PAYE service and will either:
  • cause a reduction in the customer’s tax code and the customer will receive a revised P2
  • refund the overpayment via the PAYE service to the customer after the account has been reconciled if it is too late to adjust their tax code.       
      1.   Why do I have a debt collection agency chasing me for a class 2 NIC debt, when some of the debt has been coded out? Not all of the class 2 NIC debt will necessarily be coded out as they may have other priority coded-out debts; the balance could then be sent to a Debt Collection Agency.
      1.   If I pay my debt off now (mid-year), will I get a refund of the extra tax I’ve paid? How will it be paid to me? Any overpayment, depending upon when it is paid…
  • If paid between October 2013 to January 2014, it will create a reduction in the customer’s tax code and the customer will receive a P2 for the following tax year at the new rate.
  • If paid after the coding run (January 2014) and prior to the end of the tax year, it will be returned via the PAYE service to the customer via an adjustment to their tax code and refunded through their wages / pension payment.
  • If paid after the 13 March 2015 (in other words, following the year of collection), an update will be issued to NPS(PAYE) and then transferred to NPS(NI). If the customer has paid more than is due then a refund will be made by PAYE when it is reconciled by PAYE.       
      1.   What happens to the debt if I leave PAYE employment completely mid-year? There will be instances where a customer only pays part of the coded out debt; for example, if they cease employment part of the way through the year so the employer will stop making deductions. HMRC will recalculate the customer’s tax code and will allocate the money paid for the NICs debt after the account has been reconciled at the end of the tax year; the remaining unpaid period will still be due and further arrangements will be made to effect repayment.
For example, if full payment has not been collected NPS(NI) will check to see if there is a debt for the same year in IDMS; if there is, it will increase the debt by the amount not collected. If there is no debt for the same tax year in IDMS, the debt will remain in NPS(NI).      
  1.   I have received a bill that tells me I have until 31/01/2014 to pay and I have now received a letter telling me to pay immediately otherwise my debt will go to a Debt Collection Agency (DCA). The notes on the back of your class 2 NICs payment request explain that arrears have to be paid immediately. Only the period from 07/04/2013 to 05/10/2013 is not due for payment until 31/01/2014.

You should pay the amount requested on the letter from Debt Management now using the payslip on that letter.

You can also pay the remainder at the same time or wait until January 2014 to pay the remainder using the payslip on your payment request.      
  1.   I have received a letter telling me to pay immediately otherwise my debt will go to a DCA. The notes on the back of your class 2 NICs payment request explain that arrears have to be paid immediately. Only the period from 07/04/2013 to 05/10/2013 is not due for payment until 31/01/2014.

You should pay the amount requested on the letter from Debt Management now using the payslip on that letter.

You can also pay the remainder at the same time or wait until January 2014 to pay the remainder using the payslip on your payment request.      
  1.   I am a pensioner; can I have my debt collected though my tax code? If you are at, or will reach, State Pension age by the 2014-15 tax year, we cannot collect your debt through your tax code.