Collection of tax underpayments via PAYE tax code

Produced by Tolley

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Collection of tax underpayments via PAYE tax code
  • Collection of unpaid tax via PAYE
  • Collection of estimated unpaid tax
  • Checking the PAYE tax code for underpayments
  • Are entries in boxes 7 to 9 necessary?
  • Collection of other debts via the PAYE tax code
  • Debt collection via in-year PAYE code changes
  • Potential problems for the taxpayer

Collection of tax underpayments via PAYE tax code

If the tax payment due for the tax year is less than £3,000 and the taxpayer is employed or receives a pension, they can ask HMRC to collect the tax via their pay as you earn (PAYE) tax code rather than making a payment. Note that this method of collection is not available if the tax is due under a simple assessment. See the Simple assessments guidance note.

The taxpayer may prefer this option from a cash flow perspective. HMRC prefers this option as it makes collection of the debt more likely.

HMRC may also try to collect estimated unpaid tax for the following tax year via the PAYE code. This may be less attractive to the taxpayer as it relies on assumptions made by HMRC before the facts are known.

Overpayments of tax credits and late paid Class 2 national insurance contributions can also be collected via the taxpayer’s PAYE code. The amount of such debts which can be collected in this manner changed from April 2015. Prior to this date, the amount that could be collected via the PAYE code was £3,000, but from 2015/16 the limit is increased on a sliding scale, with up to £17,000 of debt able to be collected via the PAYE code from taxpayers with ‘PAYE income’ of £90,000 and above. This is discussed at the end of this guidance note.

However, the amount of underpaid tax (and other debt as appropriate) that can be collected via the PAYE tax code is subject to an overriding limit which prevents more than 50% of the relevant payment (the net PAYE income) in the payment period being deducted as tax via PAYE. Previously, this 50% overriding limit only applied to individuals with K codes, but since April 2015 it has applied to all PAYE codes.

Note that from March 2020 onwards, HMRC can begin collecting ‘self assessment debt’ straightaway by amending the PAYE tax code for

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