Coding out debts
The coding threshold allows taxpayers to have a tax underpayment of less than £3,000 collected via their tax code, provided they are in employment or in receipt of a UK-based pension. The coding applies to certain debts such as Self Assessment liabilities and tax credit overpayments.
From April 2014 outstanding Class 2 NIC contributions can also be collected via a PAYE tax code adjustment. Class 2 National Insurance Contributions (NICs) are paid by all self-employed taxpayers unless they qualify for the small earnings exemption or other exemptions which remove the necessity to pay NICs. Taxpayers that have received an Annual Coding Notice (P2) and do not want their Class 2 NICs outstanding debt to be included in their tax code need to pay the amount due as soon as possible.
The increase in the coding threshold has helped more people with small debts and underpayments to benefit from this collection method. Instead of paying off debts in a lump sum, money is collected in monthly instalments over a year.
Taxpayers taking advantage of this method of tax payment, with underpayments in the tax year 2012-13, will pay back the amount owed to HMRC (up to £2,999) in the tax year 2014-15, which starts on 6 April 2014.