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HMRC internal manual

Debt Management and Banking Manual

Time To Pay: Time To Pay requests: debts being collected though the tax code

Coding out

HMRC can collect debts of £2999.99 or less through a customer’s tax code on a mandatory basis where the customer is in PAYE employment or in receipt of a UK based pension. This is known as coding out.

Tax credit overpayments cannot be coded out on a mandatory basis but can instead be collected on a voluntary basis.

Before DMB can collect a debt through a PAYE code at least one letter will be sent to the customer requesting payment. If payment is not made a letter will be issued to the customer advising that we will consider coding out their debt if they do not pay.

Customer advises that they cannot pay due to financial hardship

When a debt is coded out the debt will be collected over the course of the tax year, in effect over a period of 12 months. In some cases you may get calls from customers who contact us advising that this will cause them hardship.

When the customer does you should carefully review the customer’s circumstances and establish their ability to pay.

Depending on how long the customer needs to pay you should use the individual negotiation framework or the income and expenditure form to gather relevant information from the customer.

If the customer demonstrates that they cannot afford to have the debt collected through their tax code you should look to negotiate a suitable TTP arrangement to clear the debt as quickly as they can afford, with payment being made by direct debit.

For further details about

TTP agreed

Where you agree that TTP is suitable you must follow the relevant guidance to ensure that any amount sent to NPS is removed from the code and sent to the relevant HoD system.

Once the debt is returned to the HoD system set the arrangement up as in DMBM803700. You should also make sure that you advise the customer of the action we will take if they do not keep to the arrangement.