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HMRC gains pay packet tax debt collection powers

HM REVENUE & CUSTOMS will be able to deduct up to £17,000 per year of tax debts from high earners’ pay packets under powers coming into force this week.

The move represents a significant increase on the previous annual tax collection ceiling, which was previously set at £3,000.

Over the course of the year there has been controversy over HMRC’s increasing powers in the area of debt recovery in recent months, with ICAEW tax faculty technical committee chairman Paul Aplin warned the measures would have to be “bomb-proof” when they were initially extended in March’s Budget.

In that speech, the chancellor announced HMRC would be given powers to take money from bank accounts on debtors who owe more than £1,000 in tax or tax credits and had repeatedly failed to respond. Crucially, too, HMRC said it would leave at least £5,000 across debtors’ accounts.

HMRC sought to increase the limits on the debt it can collect through PAYE because it was “inefficient and unfair” to be forced to use more expensive debt pursuit methods when collecting larger sums. It added the new rules would also potentially help debtors on higher incomes as they would be able to stagger their debts over the tax year, instead of having to pay upfront.

The increased threshold is expected to bring in an additional £115m in 2015/16 and has attracted less concern from practitioners than the direct debt recovery powers because it will not affect those earning below £30,000, who will still operate under the £3,000 limit. An incremental scale will be in place, with £17,000 limit reserved for those earning £90,000 or more.

A spokesman for HMRC said: “Taxpayers welcome the option to have tax debt collected by instalment. This is a very longstanding feature of the payroll system but the increase in the current threshold will allow more tax debts to be paid in this way.

“We will issue letters advising taxpayers that collection through their PAYE tax code is being considered to collect their outstanding arrears. The amount of debt to be collected through the PAYE code will then be shown on the Annual Coding Notice (P2) which is sent to the taxpayer between January and March 2015 before the new tax year starts on 6 April 2015.”

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