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HMRC internal manual

PAYE Manual

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HM Revenue & Customs
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Coding: adjustments to collect tax: coding out outstanding debts

Legislation contained in the Finance Act 2009 allows HMRC to collect debts up to £3,000 by making an adjustment to an individuals PAYE code where the individual has a PAYE source with sufficient income.

From October 2014 HMRC have enhanced the capacity to collect debt through PAYE by introducing a sliding scale of coding limits for individuals with annual earnings above £30,000. Debts can now also be split (partially coded out) to further maximise the amount that can be collected subject to coding rules.

Note: These changes do not apply to SA balancing payments or PAYE underpayments.

Debt Management & Banking (DMB) will send outstanding SA and Tax Credit debts for coding out. Tax Credit debts can only be coded with the individuals consent. Class 2 NIC debts will be sent for coding from October 2013.

Contacts

If you work in Customer Contact or Customer Operations, you will have view only functionality on NPS as DMB staff will be handling Tax Credit and SA work. Staff in NICEO will handle Class 2 NIC.

Note: Class 2 NIC Contact

* NICEO post centre Manager, Self Employed service, BP3102, Benton Park View, Newcastle, NE98 1ZZ

Note: DMB Contact Details are

Graduated income scale coding limits

Up to £29,999.99 £3,000
   
£30,000 - £39,999.99 £5,000
£40,000 - £49,999.99 £7,000
£50,000 - £59,999.99 £9,000
£60,000 - £69,999.99 £11,000
£70,000 - £79,999.99 £13,000
£80,000 - £89,999.99 £15,000
£90,000 and above £17,000

Splitting debts

Individual debts can be split so that part of a debt can be collected through the tax code and the remainder returned to DMB for alternative recovery action.

Example

An individual has a Tax Credit debt of £4,000 and estimated income of £29,000. Then £2,999.99 will be accepted into the code and the remainder returned to DMB for alternative recovery action.

Outstanding debts from IDMS

An initial coding check prior to debts leaving the Integrated Debt Management System (IDMS) is carried out to ensure only customers with debts that can be coded receive the advice letter from DMB.

Note: This process is not visible on NPS and the following rules continue to apply when debts are sent for coding.

IDMS will send each separate debt over to NPS for each coding year.

NPS will then

  • Trace and match the debt to an individual record on NPS
  • Check individual is not deceased
  • Check individual has a PAYE source through which the debt can be collected
  • Carry out a coding check using graduated limits and current coding rules

NPS will prioritise debts to be coded out in the following order

  • PAYE potential underpayments
  • PAYE underpayments
  • SA balancing payments
  • Debts transferred from IDMS

NPS will prioritise debts from IDMS in the following order

  • Earliest date sent
  • Largest debt
  • SA debt has preference over Tax Credit debt if both sent on the same day for same amount

Where a debt is rejected NPS will

  • Notify IDMS giving the reason for rejection
  • Record the details in Contact History

Where a debt is accepted for coding NPS will

  • Notify the Head of Duty (HoD) system that the debt has been accepted
  • Create and display accounting entries in NPS Outstanding Debt Summary screen
  • Display debts individually in the Outstanding Debt Details screens
  • Record the details in Contact History

If there is a change of circumstances between initial acceptance and the start of the tax year NPS will

  • Carry out a further coding check
  • Determine which debts can still be coded and if any will now be rejected
  • Notify the HoD system of any debt(s) that can no longer be coded out
  • Record the details in Contact History

Viewing outstanding debts coded on NPS

Outstanding debt functionality displays details of outstanding debts in the following screens

  • Outstanding Debt Summary screen which lists details of each coded debt

    • HoD Source - NTC, SA, or NI
    • HoD Debt Indentifier - numeric value specific to each individual debt
    • IDMS Unique Identifier for SA and Tax Credits - this information will be used by DMB
    • Period to which debt relates - Tax Credit ‘Award Period End’ or ‘Year’ debt relates for SA or Class 2 NIC
    • Debt amount coded
    • Amount of original debt and amount of debt coded where the debt has been split (partially coded)
    • Debts status (see below for details)
  • Outstanding Debt Details Screen contains all of the above with no additional information, however it does contain the functionality for DMB operators to adjust the amounts coded

The ‘Outstanding Debt’ will show the following debt status

Debt Status Outstanding Debt
   
Coded Out Outstanding Debt Being collected in current years (CY) code or accepted for inclusion at CY+1 annual coding
Cancelled Outstanding Debt Initially accepted but can no longer be coded
Cancelled Transferred to RCS Manually reduced or removed from NPS or for years prior to CY debt not collected
Collected Outstanding Debt Debt collected and reported to HoD system

Outstanding debts and NPS reconciliations

Where an outstanding debt has been coded in the year to be reconciled, NPS will

  • Prioritise amounts owing in the following order

    • PAYE underpayments
    • SA balancing payments
    • Class 2 NIC debts
    • SA outstanding debt in order of receipt
    • Tax Credit outstanding debt in order of receipt
  • Include the coded out debts, but not show that amount in the calculation after the result for the year in isolation has been calculated
  • Determine how much if any of the outstanding debt has been collected
  • Update Accounting entries on NPS
  • Send HoD system details of amounts collected
  • Update Contact History on NPS
  • Issue a tax calculation only if the overall result is an underpayment or overpayment of PAYE tax

A calculation will not be issued to demonstrate settlement or non settlement of the outstanding debt if the overall result balances.

Where a calculation is issued it will identify whether an outstanding debt has been collected or not collected.

Example 1

Customer is overpaid on NPS £300 but has an outstanding debt of £150. The calculation will collect the outstanding debt of £150 and repay the excess.

Example 2

Customer is overpaid on NPS £150 but has an outstanding debt of £300. The calculation will collect £150 of the outstanding debt and report the balance back as not collected. The calculation will still show the overpayment figure but the result will be reconciled - balanced.

Example 3

Customer is underpaid £100 on NPS but has an outstanding debt of £200. The calculation issued will show an underpayment of £100 and the outstanding debt of £200 will be reported back as not collected.

Outstanding debts included in NPS in-year reconciliation: cessation repayments

Coded outstanding debts will be included in cessation calculations, see PAYE94025.

Outstanding debts included in NPS in-year reconciliation: unemployment repayments

Where an outstanding debt has been coded in the year and the employment ceases the debt will remain in the code, see PAYE94060.

Re-reconciliation on NPS

Any outstanding debt coded within a tax year will only be included in the first reconciliation for that year. This means that the status of the outstanding debt will not change regardless of the outcome of any future reconciliation for the same year.

Note: This includes cases previously ‘Reconciled - Balanced’. Records with outstanding debt coded must not be ‘Reconciled - Balanced’ by operators.

For example

  • An outstanding debt that was not collected because the year was underpaid will not be taken into account even if the year subsequently becomes overpaid
  • An outstanding debt that was collected will remain so even if the year subsequently becomes underpaid. The collected debt will show in the calculation as tax already repaid

Cases that reconcile in SA

For cases that reconcile in SA, the amounts collected against coded outstanding debts will be reported back to NPS and Accounting will be updated. NPS will then update the HoD system(s) with details of the amounts collected.