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HMRC to deduct tax debts from pay packets
29
SEP
2014

HMRC to deduct tax debts from pay packets

HM Revenue and Customs is set to receive the ability to collect as much as £17,000 a year of tax debts directly from the pay packets of high earners.

Powers due to come into force this week will raise the limit from £3,000, a move that has been met with controversy.

It comes after proposals to dip into the accounts of those in debt to the taxman were announced earlier this month, which were widely met with anger from many people across the country.

As a result, HMRC has looked at pushing to raise the limits it can collection through the pay-as-you-earn system.

It claims the new powers would potentially help higher earners in debt to the taxman as they would be able to stagger their payments as opposed to paying upfront.

HMRC said in a statement quoted by the Financial Times: “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.”

The change is reportedly expected to raise as much as £115 million in the 2015-16 tax year, while there has not been too much controversy, due to the fact it will not affect those earning less than £30,000.

Tim Stovold, a partner of accountancy firm Kingston Smith, told the newspaper: “This change has had much less focus than the harshly criticised rules for the direct recovery of debts from bank accounts. If HMRC is denied that ability they are more likely to use these new powers to collect the money from salaries instead.”

HMRC is set to introduce a sliding scale so that only those earning over £90,000 would face a £17,000 deduction, while it has also guaranteed it would not take more than half the salary of those affected.

HMRC has been forced to defend its willingness to crack down on tax debts, despite some of its proposed methods being attacked by lawyers, MPs, bankers and even civil liberty groups.

However, the organisation has argued that the issue is in need of addressing, due to the fact that the country's truncated financial bill is likely to be one of the key points of contention for the next general election.

The collection of tax debts through PAYE systems is nothing new and has existed since the 1940s. However, HMRC first collected non-PAYE debts in 2011 with a limit of £2,000.

However, that was soon raised to £3,000, and those affected by this latest alteration will be informed between January and March next year, at which point they will be assigned a new tax code from HMRC.

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