HMRC to collect up to £17,000 from debtors' salaries

New taxman powers can be used from April

HMRC to collect up to £17,000 from debtors' salaries

High earners who fail to pay the correct amount of tax may have up to £17,000 taken straight from their pay packet by HM Revenue & Customs (HMRC).

Previously, HMRC had powers to collect money up to £3,000 from debtors through the pay-as-you-earn (PAYE) system.

But from the beginning of the next tax year, a "graduated scale" will apply for those earning £30,000 or more, with an increased cap of up to £17,000 per year.

The regulations giving the taxman the power to do this come into force in early October.

HMRC was criticised earlier this year by some members of the Treasury Committee for its plans to raid bank accounts to recover unpaid tax.

Tax-free savings: compare ISAs

Making the tax system fairer

Specific tax codes are currently used to distinguish people who owe HMRC money, meaning that whenever they are paid through the PAYE system, more money than usual is automatically taken from their salary and paid back to the taxman.

This is known as 'coding out', and HMRC says that the increase of the cap will make the tax system fairer and more effective, as it will be able to recover more debt per year from people who earn more and therefore, in theory, can afford to pay off more of their debt.

People earning under £30,000 will not be affected by the changes; the cap on debt collection via coding out remains at £3,000 a year. Employers will now also be prevented from deducting more than 50% of an employee's pay.

Only those earning £90,000 a year or more could be subject to the maximum deduction of £17,000.

Article continues below

Celebrity Tax Problems - Happy Tax Day!

How will this work?

The new graduated scale applies from the 2015-16 tax year, and those who owe tax will be informed in advance of the amounts they can expect to be deducted from their income from April 2015 onwards.

Precise details of the sliding scale such as salary 'brackets' are yet to be made clear, as the amendment document is currently in the drafting stages.

Tax-free savings: compare ISAs

The Tax Information and Impact Note (TIIN) filed by HMRC regarding the matter says that there "are some customer benefits" to the plans, as more debts could be coded out and repaid over an extended period, rather than HMRC demanding the debt to be paid in full and at once.

The TIIN also lays out HMRC's expectations that £115 million extra will be raised during the 2015-16 tax year because of the implementation of the new rules. It then expects further returns of £50 million during 2016-17, and £30 million in each of the subsequent two years.

Read more about tax on AOL Money

Mansion tax won't just hurt the wealthy

Pension inheritance tax to finally be axed

The UK is a 'tax haven', whether we like it or not

Tax tricks to improve your wealth

Tax tricks to improve your wealth