PAYE14010 - Coding: adjustments to collect tax: coding out outstanding debts

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

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

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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

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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.