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If the tax payment due for the tax year is less than £3,000 and the taxpayer is employed or receives a pension, they can ask HMRC to collect the tax via their pay as you earn (PAYE) tax code rather than making a payment. Note that this method of collection is not available if the tax is due under a simple assessment. See the Simple assessments guidance note.

The taxpayer may prefer this option from a cash flow perspective. HMRC prefers this option as it makes collection of the debt more likely.

HMRC may also try to collect estimated unpaid tax for the following tax year via the PAYE code. This may be less attractive to the taxpayer as it relies on assumptions made by HMRC before the facts are known.

Overpayments of tax credits and late paid Class 2 national insurance contributions can also be collected via the taxpayer’s PAYE code. The amount of such debts which can be collected in this manner changed from April 2015. Prior to this date,