DMBM618100 - Pre-enforcement: coding out: adjustments to amount outstanding following coding run

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Any adjustment to the amount of outstanding debt that is included in a code in operation for the current tax year will result in re-calculation of the tax code. If the tax code can be issued on a cumulative basis, any tax overpaid will be returned to the customer via their wages. This may not happen in every case as there could be other debts that are being collected which means the tax code must remain on a non-cumulative basis (wk1/mth1) basis

Example 1 - The SA outstanding debt has been included from the start of the tax year. The Outstanding debt restriction included in the tax code to collect the SA outstanding debt in these cases will be calculated on an "annual basis" using the customers highest rate of tax. (£1200 x 100/20 = restriction 6,000). The debt will be collected in equal instalments throughout the year. 

£400 of a £1,200 outstanding debt will have been collected by month 4 of the tax year. If the outstanding debt is reduced to £600 then only £200 would have been due at month 4 of the tax year. The revised code would make this adjustment by returning £200 through the customer’s wages and collecting the remaining £400 over the next eight months of the tax year.

Example 2 - The SA outstanding debt has been included from the start of the tax year. The Outstanding debt restriction included in the tax code to collect the SA outstanding debt in these cases will be calculated on an "annual basis" using the customers highest rate of tax. (£1200 x 100/20 = restriction 6,000). The debt will be collected in equal instalments throughout the tax year.

£400 of a £1,200 outstanding debt will have been collected by month 4 of the tax year. If the outstanding debt is cancelled and removed, the revised code will make this adjustment by returning £400 through the customer’s wages.

Example 3 - The SA outstanding debt has been included mid-year

  • £2,400 debt comes into NPS (PAYE) 1st June 2020. £1000 is accepted into 2020-21 (CY).
  • The Outstanding debt restriction is calculated daily as we are adding the debt mid-year (we do not have a full year to collect the debt (365 days)).
  • £1000 x 100/20 (customer highest tax rate) x 365 / 309 (number of days remaining in the tax year) (1/6/20 - 5/4/21)) = coding restriction 5906.
  • £1000 / 309 days = £3.23 paid daily. The tax code will be put on a non-cumulative basis.

When the debt is reduced by £600 on 1/7/20 a new tax code and Outstanding debt restriction will be calculated. At that time a tax table check will be done against the RTI data (pay and tax details received) to decide if we can restore a cumulative basis or remain on a non-cumulative basis.

For SA outstanding debts coded from 4 March 2020, the rules attached to reductions mean that the amount of the reduction is deducted from any amount held in the current year + 1 before current year. This means there will be no unnecessary adjustment to the current year tax code.

For example:

£2,400 debt comes into NPS (PAYE) 1st June 2020.

£1,000 is accepted into 2020/21 tax code and £1,400 is accepted into the 2021/22 tax code.

  • 2020/21 - Debt remains at £1,000 being collected in current year
  • 2021/22 - Debt is amended from £1,400 to £400 to be collected in current year + 1