The coding out threshold may entitle you to have tax underpayments collected via your tax code when you are in employment or in receipt of a company pension.  If you have an underpayment of PAYE or an amount owing under a self assessment tax return, you may be able to pay back the debt in monthly instalments instead of a lump sum, through your tax code.

In order to be eligible to pay tax back through your tax code, all of the criteria below MUST apply:

•  you owe less than £3,000 on your tax bill (you cannot make a part payment to meet this threshold)

•  you already pay tax through PAYE, for example you’re an employee or you get a company pension and 

•  you submitted your paper tax return by 31 October or your online tax return by 30 December. 

HMRC will automatically collect what you owe through your tax code if you meet these three conditions, unless you have specifically asked them not to (on your tax return). There are circumstances when HMRC will not collect the monies through your tax code, for example, if you do not have enough PAYE income to cover the debt.

If you would like to consider paying your self-assessment bill in this way for the 2023-24 tax year, you have until 30 December 2024 to file your online self-assessment returns to have the monies collected in the 2025-26 tax year starting on 6 April 2025.  If you qualify to have your tax debt coded out, then this is a good reason to deal with your tax return obligations as soon as you can, after the end of the relevant tax year. 

For more information, please contact us.