HMRC to lift tax owed directly from pay packets

HM Revenue & Customs are now able to collect up to 17,000 a year of tax debt directly from higher earners pay packets

Previously HMRC could only take £3,000 per year but the increase came into effect at the beginning of October following an announcement in last year’s Budget.

Tim Stovold from accountancy firm Kingston Smith said the rules had been overlooked by many and would come as a ‘nasty surprise’.  He added;

“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 monies from salaries instead.”

In their defence, HMRC said they had pushed to raise the limits on the debt they can collect through the pay-as-you-earn system because it was ‘inefficient and unfair’ to be forced to use more expensive methods.  They also pointed out that it would allow those with large debts to stagger the amount they repaid throughout the year rather than having to pay the whole amount upfront.

The change which is expected to raise £115m in the 2015-16 tax year, has aroused less controversy than plans to deduct the money from bank accounts because it spreads payments over the year and does not effect those earning less than £30,000 who will still be subject to the £3,000 limit.  HMRC has introduced a sliding scale so that only those earning over £90,000 would face the £17,000 deduction.  They have also guaranteed they would not take more than half the salary of those affected.

Tax Policy Director at the Chartered Institute of Taxation Patrick Stevens said the reaction to taking money out of people’s pay packets had been ‘quite relaxed’ compared to the furious reaction to the plans to take money directly from bank accounts.

He said; “In both cases HMRC have the power to take money from you, although in the case of direct recovery of debts it is only done once.  In the case of a coding notice it is done over 12 months so you would have time to complain about it.”

The proposals to take money out of bank accounts have received intense criticism from lawyers, accountants and banks.  However HMRC has defended the measures which are likely to be decided by the next government following the May 2015 elections.


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