HMRC to take tax debts from pay packets

HMRC tax debts from pay packets

HMRC are set to take tax debts from high earners’ pay packets, under new powers that come into force later this week. This measure was discussed in the 2013 budget and implemented through secondary legislation. It means that HMRC will be able to collect up to £17,000 a year of tax debts directly from pay packets, which is a significant increase from the current limit of £3,000.

The change is expected to raise £115m in the 2015-16 tax year and has been overshadowed by new HMRC powers to recover debts directly from bank accounts. Despite receiving intense criticism, HMRC continues to defend its crackdown. The matter may end up being decided by the next government, as the May general election is likely to result in a reduced Finance Bill.

It should be noted that this proposal has been introduced on a sliding scale, consequently only individuals earning more than £90,000 would face a £17,000 deduction and this will not affect those earning less than £30,000, who will still be subject to the £3,000 limit. HMRC have also issued a guarantee that it would not take more than half the salary of those concerned. This new measure has caused less controversy than the plans to deduct the money straight from bank accounts, as it spreads the payments over the year via a PAYE coding notice.

Experience would suggest that once HMRC start interfering with your PAYE code number it can easily get confusing therefore those affected should seek advice and also take care to ensure it is removed from the code for the following year.

For advice on this, or any other tax issues, contact Jane Parry jane.parry@pmm.co.uk or any member of the tax team.