SolvedPAYE14010 | Coding: adjustments to collect tax: coding out outstanding debts
From HM Revenue & Customs · PAYE Manual
Legislation contained in the Finance Act 2009 allows HMRC to collect debts up to £3,000 per tax year 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 (DM) will send outstanding SA and Tax Credit debts for coding out. Tax Credit debts can only be coded with the individual's 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 DM 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: DM Contact Details are
Tax Credits contact (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
Self Assessment preferred contact by eForm to (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
If no access to eForm, E-mail (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
Graduated income scale coding limits
Splitting debts
Outstanding debts from IDMS
Viewing outstanding debts coded on NPS
Outstanding debts and NPS reconciliations
Outstanding debts included in NPS in-year reconciliation: cessation repayments
Outstanding debts included in NPS in-year reconciliation: unemployment repayments
Re-reconciliation on NPS
Cases that reconcile in SA
Graduated income scale coding limits
| 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 DM 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 DM 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 DM.
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 for current year (CY) and current year +1 (CY+1) for SA outstanding debts only. All other outstanding debts will be coded in CY+1 only.
NPS will prioritise debts to be coded out in the following order:
PAYE in-year adjustments
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
Display debt history in the Transaction Debt Details screen
Record the details in Contact History
For outstanding debts that are coded out in CY and if there is a change of circumstances in-year NPS will:
Carry out a further coding check for CY
Determine which debts can still be coded and if any will now be rejected
Determine which debts can be carried forward to CY+1
Notify the HoD system of any debt(s) that can no longer be coded out and any change to any coded out amounts
Record the details in Contact History
Record the details in the Transaction Debt Details screen
For outstanding debts that are coded out in CY+1, 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
Record the details in the Transaction Debt Details screen
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
IDMS Unique Identifier for SA and Tax Credits - this information will be used by DM
Period to which debt relates - Tax Credit ‘Award Period End’ or ‘Year’ debt relates for SA or Class 2 NIC
Date Transferred to NPS – date the outstanding debt was sent from IDMS to NPS
Amount coded out Y1 – amount of debt included in CY
Debt Status Y1 – the status of the Year 1 debt, see below
Y1 Tax Year – the tax year in which the Year 1 debt has been coded
Amount coded out Y2 - amount of debt included in the following year
Debt Status Y2 - the status of the Year 2 debt, see below
Y2 Tax Year - the tax year in which the Year 2 debt has been coded
Outstanding Debt Details Screen:
HoD Source - NTC, SA, or NI
HoD Debt Identifier – numerical value specific to each individual debt
IDMS Unique Identifier for SA and Tax Credits - this information will be used by DM
Period to which debt relates - Tax Credit ‘Award Period End’ or ‘Year’ debt relates for SA or Class 2 NIC
Debt Status Y1 - the status of the Year 1 debt, see details below
Debt status Y2 - the status of the Year 2 debt, see details below
Original Debt Amount - the amount that was sent from IDMS to NPS for coding
Full coded out debt amount – this is the amount that has been included in the tax code(s)
Amount Coded out Y1 – amount of debt included in CY
Amount coded out Y2 - amount of debt included in CY+1
It also contains the functionality for DM operators to adjust the amounts coded.
The ‘Outstanding Debt’ will show the following debt status, table below.
| 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 has been manually reduced or removed in full from the tax year |
| Cancelled Transferred to RCS | Manually reduced or removed from NPS or for years prior to CY debt not collected |
| Allocated Outstanding Debt | Debt collected and reported to HoD system at reconciliation |
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, including Simple Assessment
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
Determine how much of the uncollected debt can be transferred to CY
Update Accounting entries on NPS
Send HoD system details of amounts collected and any changed to amounts included in the CY tax code
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.
Where a year is reconciled for the first time as underpaid and the result is an underpayment, that cannot be coded, this will be collected by Simple Assessment. Where an underpayment is collected by Simple Assessment, any Outstanding debts, for the Simple Assessment year, (for example Self-Assessment, Tax Credits or National Insurance), included in the initial reconciliation will be cancelled from NPS and a message will be issued to the original head of duty system.
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, where applicable, try to transfer the uncollected amount to the CY tax code. It will report any changes or uncollectable amount back to the HoD. 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, where applicable, try to transfer the uncollected amount to the CY tax code. It will report any changes or uncollectable amount back to the HoD.
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.
For Simple Assessment years where a year has been reconciled to include the outstanding debt the outstanding debt will not be cancelled from a re-reconciliation resulting in a Simple Assessment.
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 or any amounts transferred to the CY tax code.