Coding out debts

From April 2012 the coding threshold was increased from £2,000 to £3,000 allowing taxpayers to settle an underpayment of less than £3,000 via their tax code. This is subject to them being in employment or in receipt of a UK-based pension. The coding adjustment applies to self assessment liabilities and tax credit overpayments.

From April 2014 outstanding Class 2 NIC contributions can also be collected using PAYE tax codes. 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.

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 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.