From April 2012 HMRC will be able to collect debts of less than £3,000 by including them in the taxpayer’s PAYE code. This applies to both tax debts and tax credit overpayments.
Last year HMRC began writing to affected individuals so that they would have the opportunity to arrange to pay the outstanding amount by another method. HMRC will now start including outstanding debts in PAYE codes issued from January 2012. Such amounts will be included in the code issued at the start of the tax year but will not be added to the code in-year.
There are some points here which Ward Williams draw to the reader’s attention:
· Is the HMRC calculation of tax underpaid (or tax credits overpaid) correct? HMRC have been through torrid times lately with staff reductions and management and software traumas, which means their information is not always up to date. Unfortunately it has been the experience of the writer that many of the tax calculations issued by HMRC are wrong; indeed one of my colleagues believes that they are “usually” wrong.
· Do you wish to pay this tax debt through PAYE, thereby reducing your take home pay every pay day or is the collection of an extra amount of tax of up to £2999 causing you hardship? As agents, we have access to a dedicated telephone line to HMRC and we should be pleased to use this to attempt to arrange some other form of payment. For instance the PAYE regulations prohibit more that 50% of an employees cash earnings (E.g. his/her earnings excluding benefits such as BUPA or a company car) from being deducted in tax. In some cases HMRC may not have realised that this limit has been exceeded. It might also be possible to spread the payments over up to 3 years rather than one where hardship can be demonstrated.
· Whose fault was the underpayment? Where it was caused by a HMRC error, in some cases HMRC will agree to totally or partially write off the debt.
For further information/advice on this topic please visit www.wardwilliams.co.uk