SAM141045 - Transfer of liability: transfer from SA to PAYE: Coding out debts
Background
Graduated income scale
Splitting outstanding debts
Reduction in the Coded Debt
Automatic Repayment Requests
NPS Reconciliation
Effective Date of Payment
Interest
SA Tax Return processing
Create Return Charge
Amended Tax Returns
SA DM contacts
Background
From 6 April 2012, HMRC have been able to collect HMRC debts of less than £3000 through a customer’s PAYE tax code. From October 2014, the coding limit was extended by introducing a graduated income scale. Also, from October 2014, DM will be able to split debts so that part of an outstanding debt can be coded and the residual debt can be collected by an alternative recovery method. In SA, operators will be able to see the debts selected for coding on the SA statement, and in the customer code from April 2015.
Self Assessment debts suitable for coding out are identified by IDMS and sent to NPS. In turn, NPS will advise CESA that the debt is now to be included in the customers’ tax code. From 4 March 2020 Self-Assessment debts can be coded over 2 tax years.
CESA will automatically record a ‘Type 16 remission’ against each charge type (for example, a Balancing Charge Due, or Penalty) that makes up the coded debt, and the SA statement will be updated to show the description ‘Amount included in tax code for 20XX/XX’.
For further information, see Debt Management Banking Manual at DMBM618000 onwards.
Note: From 2015-2016, a Class 2 NICs amount may be included in the SA debt where the customer is self-employed.
Graduated income scale
SA balancing payments and PAYE underpayments are not included in the Graduated Income Scale outlined below.
From October 2014, the maximum limit for the coding out of debts increased to enable DMB to collect larger debts through Pay As You Earn (PAYE) from those customers who have higher earnings, but there is no change to the £3000 limit for earnings less than £30,000.
The graduated income scale shown below is used to calculate how much debt can be collected from an individual’s tax code per tax year. For example, where the customer earns between £70,000 and £79,999.99 per annum, up to £13,000 can be coded out.
| Annual PAYE earnings | Coding out limit |
|---|---|
| Up to £29,999.99 | £3,000 |
| £30,000 - £39,999.00 | £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 |
Note: Earnings in this context means earnings associated to the main/primary source of income paid through PAYE.
Splitting outstanding debts
From October 2014, DM are able to split debts so that part, or all, of a debt can be collected through the tax code, up to the set limit in the graduated income scale, with the residual debt being collected by an alternative recovery action.
For example
A customer has a £900 debt working with DM and the whole amount will be sent to NPS (PAYE) for coding out. Currently, NPS identifies that only £600 can be coded out so the whole debt is rejected and is returned to DM for alternative recovery action.
Following the new process, NPS will accept £600 for coding out and the remaining £300 will be returned to DM for alternative recovery action.
In SA, the debt will be shown on the SA statement as follows
‘12/13 daily penalties £900 less amount included in tax code for 20XX/XX £600, amount outstanding £300’
In NPS, to identify when a debt has been split, the ‘Outstanding debt’ details screen will include a new field called ‘Original Debt Amount’. This field will contain the total debt amount sent originally from IDMS and can be accessed from the ‘Outstanding debt’ summary screen.
Note: The graduated income scale and the splitting of debts will not be applied to SA Balancing Charges or PAYE underpayments. However, they will be used if the customer has other outstanding debts.
For example
The customer has a total of £12,000 debt on Self-Assessment consisting of
- £3000 SA Balancing Payment already included in the tax code
- £9,000 other SA debts, including penalties held in IDMS and sent to NPS for coding out
If a customer earns £38,000, a maximum of £5000 can be coded. This will consist of £3000 SA Balancing Charge and £2000 other SA debts for Year 1 and £5,000 of other SA debts in year 2. The remaining £ £2,000 will be rejected and sent back to IDMS for alternative recovery action.
In-year changes to a tax code
If a customer contacts us with a change in circumstances which may affect the code or estimated pay, it is important that a coding calculation is triggered to ensure the correct amount of debt remains in the code.
For example
A customer has an outstanding £1000 debt. Of that, £500 has been coded out and £500 remains collectible in IDMS. Following a change in circumstances, an operator adjusts the estimated pay on NPS reducing the amount that can be coded out to £400.
NPS recalculates the amount suitable for coding out in Year 1 to £400 and attempts to code the remaining amount in Year 2. If this cannot be accepted, NPS sends a ‘Type 16 remission’ update to CESA of ‘minus £500’ and ‘plus £400’ creating a net remission reduction of £100.
If the debt can be accepted in the Year 2 tax code, no ‘Type 16 remission’ will need to be sent as there is no change to the amount of debt being coded.
Reduction in the Coded Debt
Where an SA debt that has been included for coding out in NPS is reduced, SA will automatically minus remit the full amount of the ‘Type 16 remission’ and create an entry on the DM worklist W012 ‘Remissions and Remission Cancellation Quality Assurance’.
Automatic Repayment Requests
Where an automatic repayment request is received, the presence of a ‘Type 16 remission’ on the SA record will not
- Create an entry on the W030 ‘Inhibit Automatic Repayment’ worklist
Or
- Stop the issue of an automatic repayment
NPS Reconciliation
Where the customer is no longer a live SA case for the year the debt is coded, and they are reconciled in NPS, the NPS system will calculate the amount of the debt collected, if any, through the PAYE code. A notification is then sent to SA which
- Cancels the ‘Type 16 remission’ on the SA record
- Creates a credit on the SA record of the amount collected in the PAYE code.
Any credit is automatically set against the coded debt first. However, if that coded debt is later reduced, the credit will be subject to the usual payment allocation rules.
The credit will be shown on the SA Statement as ‘Amount collected through tax code in 20XX/XX’.
Where none of the coded debt is collected, an automatic SA note will be created advising the debt coded and the year coded. The note will say
‘0.00 collected in XX/XX against the coded debt on [debit type] XX/XX’.
For example,
‘0.00 collected in 14/15 against coded debt on BCD 11/12’
Effective Date of Payment
The effective date of payment of the credit created will be
- For debts coded ‘In Year’, the date the debt was accepted into the tax code.
- For debts coded current year+1, 6 April of the year in which coding out takes place.
- For debts transferred from Year 1 to Year 2, when part of the same debt has already been included in the Year 2 tax code, the date will be the original Year 2 date, that is, 6 April XXXX.
For example
- In Year - where a debt is accepted into the 20/21 tax code on 5 May 2020 , any credit created for the collected debt will have an EDP of 05/05/2020.
- Current year +1 - where a debt is accepted into the 21/22 tax code on 5 May 2020, any credit created for the collected debt will have an EDP of 06/04/2021.
- Debts transferred from Year 1 to Year 2 when part of the same debt has already been included in the Year 2 tax code - Debt Accepted and coded over Year 1 and Year 2 on 5 May 2020. Year 1 is reconciled and some of debt has not been collected. The uncollected amount is transferred to Year 2, any credit created for the collected debt in Year 2 will have an EDP of 06/04/2021.
Interest
Interest will be charged on the coded debt from the original due dates of the SA charges. Accruing interest will not be visible however while the ‘Type 16 remission’ is in place.
For example
Where a 2010-11 Balancing Charge Due is coded out, the original Relevant Due Date for interest will remain as 31/1/2012.
Where that debt is coded and collected in full in the 2014-15 tax year, interest will be charged between 31/01/12 and 6/04/14.
SA Tax Return processing
The details of coded debts are cut-over from NPS at the start of the tax year and stored on the taxpayers SA record and the return capture functionality has been enhanced to recognise debts that are coded out.
In Revenue calculation cases, the NPS figure is automatically added to the tax calculation and the SA tax calculation will ‘ring-fence’ the debt collected to prevent it from being refunded or used to settle any other debts.
The SA302 (tax calculation) will show the amount of PAYE tax, the amount of debt collected and the balance of PAYE tax available to SA.
Where there is not enough PAYE tax collected to clear the coded debt, the debt collected is restricted to the amount of PAYE tax.
A new box has been added to the SA110 (Tax calculation summary) for self-calculators to record the amount of coded debt. SA will compare the small debt figure entered on the tax return with the system debt figure and (for both paper and Internet filed returns), where there is a mismatch, SA will automatically repair the figure to the system figure and issue an SA302 (Tax calculation) with the repair message:
‘Outstanding debt included in your tax code (Tax calculation box 9) has been changed to £XX.XX because the figure on the tax return does not agree with our records’.
Note: Where a small debt has been coded out, and there is a mismatch between the taxpayers and the system figures, an SA302 will be issued for returns processed online for the first time. An SA302 will not be issued for Internet filed returns when the debt coded out on the return agrees with the system figure.
Once the tax return has been processed, SA will notify NPS of the amount of debt collected.
Create Return Charge
Function CREATE RETURN CHARGE includes a field for amount collected against coded out debts and the field is populated with information from NPS after the end of the tax year.
Any PAYE tax included in the ‘tax deducted at source field’ in function CREATE RETURN CHARGE must be reduced by the amount of coded debt collected.
When a tax return is not required, the function - CREATE RETURN CHARGE is used to create a nil return charge. For the tax years 2012-2013 onwards, when using the function to create a nil charge, if a coded debt is present, the coded out amount will default to £0.00 and a warning message will appear as follows ‘Coded out debt figure removed and Nil charge entered’. See subject - ‘Withdrawing a notice to file’ (SAM120116).
Where a coded out debt is included, CREATE RETURN CHARGE will only send reconciliation data to NPS where there has been no previous charge recorded for that year, from either CREATE RETURN CHARGE or a return.
Note: If you use function CREATE RETURN CHARGE following the capture of a return, or CREATE RETURN CHARGE has already been used, the small debt collected field is protected and cannot be updated.
Amended Tax Returns
There is no facility to notify NPS automatically if the amount of debt collected changes. If the amount of debt collected changes as a result of an amended tax return, clerical action may be required to notify NPS of the revised amount and correct the SA account. As the action required may vary according to individual circumstances, it is advisable to contact the SA mailbox, giving details of the case before proceeding.
SA DM contacts
Where the debt has not yet moved to NPS, if the debt is still outstanding on the SA statement and the customer wants to pay, or discuss time to pay, you should refer them to SA DRT on 0300 200 3820. For anything else relating to coded out debts, you should contact the Coding out team via the methods below.
If you receive any queries where the debt has moved to NPS and is no longer shown as outstanding on the SA statement (‘Type 16 remission’ posted) and the descriptor “Amount included in tax code for 15-16” is shown, you should contact the coding out team in all cases where the debt has moved to NPS. They will take the appropriate action. For example, in cases where a customer has made a payment (full or partial) on SA in respect of the coded- out debt and wishes their code to be amended as a result. The coding out team will amend the ‘Type 16 remission’ to match the reduced coded amount and will also arrange to have the code updated.
The coding out team can be contacted by E-form to DMB SA Single Point of Contact Office select ‘coding’ as the referral reason to ensure this is sent to the contact team.
This is the preferred method of contact.
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
Any external post should be sent to:
Debt Management SA
HMRC
BX9 1GX