Clause 109

Finance Bill – in a Public Bill Committee at 6:45 pm on 23rd June 2009.

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Recovery of debts using PAYE regulations

Question proposed, That the clause stand part of the Bill.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

The clause and schedule 58 relate to the recovery of debts using PAYE payments. The provision enables HMRC to collect small debts of no more than £2,000 across all the taxes it administers from taxpayers  through the PAYE system. The provision specifically excludes HMRC from using the PAYE system to collect debts in respect of tax credits or any debts due from an employer during the current tax year. Regulations can be made through secondary legislation to effect the proposal.

It is intended that the provision will be used by HMRC as a last resort in the event that a debt cannot be paid in full or through a time to pay arrangement. I would be grateful if the Minister confirmed that the provision is a last resort—there is no specific safeguard in the legislation or in PAYE regulations to say that that is the case. Currently, small sums relating to self-assessment liabilities from previous years are collected through the PAYE system on a regular basis.

Given that £2,000 is a large sum for many taxpayers, it would be appropriate to have some form of statutory safeguard in the regulations, such as a referral to a more senior officer, to ensure that the mechanism is utilised only as a last resort. I would be grateful if the Minister provided assurances that regulations will reflect that, or at least that the provisions of the clause and schedule 58 will not be used as a routine method of collecting small debts.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

The clause introduces schedule 58, which allows HMRC to collect certain debts owed to it through the pay-as-you-earn system. HMRC faces a particular problem with small debts, which represent a large percentage of what it is owed by volume, but only a small percentage by value. That makes its traditional methods of enforcement—going to court to obtain judgment or seizing goods to sell at auction—increasingly less cost-effective. Those traditional methods can cause the debtor stress and extra expense. The clause allows HMRC to use the PAYE system it administers to collect small debts over time. Doing so reassures compliant taxpayers by ensuring that tax debt is pursued, while offering debtors an easy way to spread their payments.

The hon. Member for South-West Hertfordshire asked whether such matters can be appealed on grounds of hardship. The PAYE coding rules are designed to prevent hardship being caused through excessive deductions, either on a single pay day or through the year as a whole. If a taxpayer feels that a coding change will cause hardship, they should object by contacting HMRC immediately. HMRC also offers help to older people, those with disabilities, people on low incomes and those from diverse backgrounds, in a variety of ways as part of its day-to-day work. It recognises the need for clear and strong communications with those groups, and talks regularly to voluntary groups, including TaxAid and the Low Incomes Tax Reform Group, about problems faced by particular groups of debtors, such as the financially vulnerable. I understand that some hon. Members’ representations come from that source.

Moving on to statutory safeguards and limits on how much can be coded out, the amount that can be coded out will remain subject to the normal limits, which prevent excessive deductions. The limits are £2,000 a year or 50 per cent. of gross taxable income. The £2,000 is in the clause and the 50 per cent. is in the existing PAYE regulations. That gives important safeguards.

As the hon. Member for South-West Hertfordshire is aware, my right hon. Friend the Financial Secretary has written to the Committee about the order-making powers, which I hope provides clarification.

Photo of Brian Jenkins Brian Jenkins Labour, Tamworth

Just for clarification, when the Minister says 50 per cent., does he mean 50 per cent. of income or 50 per cent. of income less national insurance contributions? What is the tax take? How much income do such people have left?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

My understanding of the safeguards is that the limits are £2,000 a year or 50 per cent. of gross taxable income. As I explained, the £2,000 figure is in the clause and the 50 per cent. figure is in the current PAYE regulations. I do not believe that the regulations have caused problems for those who comment on such tax matters.

I hope that I have been able to address the points that the hon. Member for South-West Hertfordshire raised.

Question put and agreed to.

Clause 109 accordingly ordered to stand part of the Bill.

Schedule 58 agreed to.