Tax & Accounting News
New guidance on coding out underpayments as upper limit increased to £3,000
21/11/2011
HMRC has issued guidance on how the new maximum upper limit for coding out tax underpayments via PAYE will work in practice.
Regulations that took effect on 20 July 2011 increased the upper limit that HMRC could collect through PAYE codes from £2,000 to £3,000.
In practice, the regulations were not in force in time to amend the 2010/11 tax returns, with the £2,000 limit remaining in place for 2010/11 self assessment underpayments to be coded out in 2012/13.
Individual clients can, however, have underpayments of between £2,000 and £3,000 coded out by HMRC is requested to do so.
Underpayments not generated from SA can be coded out up to the £3,000 limit and will be automatically included in the 2012/13 code.
Guidance issued by HMRC says: “Because the necessary changes to the leglislation did not come into effect until July 2011, the 2010/11 SA returns could not be amended to reflect the increase before they were issued because the resulting changes to our automatic Self Assessment processes were still being worked on.
“This means that the current coding out limit of £2,000 will remain in place for the 2010/11 SA return.”
It may be possible to take advantage of the increased coding limit and have balancing payments between £2,000 and £3000 reflected in their 2012/13 tax code.
Individuals in this position will need to contact HMRC by 30 December 2011 to discuss whether a balancing payment can be coded out in this way.
