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Paying debts through PAYE

What are the common questions associated with paying back old tax debt to HMRC through the PAYE system?

Currently, HMRC allows that taxpayers who owe old tax debts of up to £3,000 can accept a temporary PAYE code number under which the old tax is deducted from the employee's monthly salary. 

This is the only other option available to taxpayers who have tried to participate in the Self-Assessment system but object to this is to settle the outstanding tax directly. If the amount of tax due exceeds £3,000, then the  option is not available.

Recognising that the Revenue has now conceded that the current rules are ’inefficient and unfair’ and has proposed a new graduated and proportional scale to collect back tax.  For example, an employee on an annual salary of up to £30,000 can have a debt of £3,000 coded out but someone else earning up to £90,000 or more can have £17,000 (the  collected by salary deduction. However £17,000 will become the new limit.

A further proposal is that the debt can be both paid by PAYE and part paid directly.  This option has not been available in the past, supposedly due to HMRC computer restrictions.

HMRC has said it intends no one to lose more than 50 per cent of their salary through the scheme but along with paying an increased NIC levys, student loan debts or other benefit charges, this might soon creep up.

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