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LITRG is concerned that HMRC’s plan to collect more and larger tax debts by deducting them from wage packets could put low-income taxpayers into financial difficulty.

Using PAYE to collect tax debts

LITRG does not object in principle to HMRC collecting ‘old’ tax bills by using the Pay As You Earn (PAYE) system. Indeed, this can often be efficient.

But equally, it can go wrong.

A person moving jobs can find their tax code doesn’t keep up with them, so part of the debt is still owed and catches up with them again later. Or perhaps they lose their job and have no ongoing wages from which to deduct the old tax bill, so HMRC start chasing them to pay it in full even when they are in financial hardship.

Upping the ante

Starting in April 2012, HMRC intend to collect more and larger debts through PAYE (up to £3,000 instead of £2,000). So now is the time to resolve the problems.

In summary, LITRG’s response to HMRC’s technical paper:

• recommends HMRC urgently review how coding can be prevented from going wrong, what happens when it does and how it fits with self assessment
• seeks confirmation that HMRC guidance will protect taxpayers by allowing time to clarify or dispute the tax bill or make alternative payment arrangements
• recommends that HMRC help taxpayers to get advice if they are in debt, particularly if there are impacts on entitlement to means-tested benefits.

LITRG’s full response can be read on their website.