Coding Out: Paying Tax Through Your Tax Code

If you owe tax through Self Assessment and also earn a PAYE salary, HMRC may collect the tax by adjusting your employer's tax code. This is called coding out.

How It Works

Instead of paying a lump sum, HMRC reduces your tax-free allowance through your employer. This means slightly more tax is deducted from each pay packet throughout the year, collecting the Self Assessment tax gradually.

When Coding Out Applies

HMRC will code out your Self Assessment liability if:

• The amount owed is under £3,000
• You file your return by 30 December (giving HMRC time to adjust your code for the following April)
• You have PAYE employment income

Advantages

• No lump-sum payment required
• Tax is collected gradually and painlessly
• Less risk of missing a payment deadline

Limitations

• Only applies to amounts under £3,000
• You must file your return early enough (by 30 December)
• Your employer sees the adjusted tax code (but not the reason for it)

How to Request It

If you file early and your liability is under £3,000, HMRC offers coding out automatically. You can also request it through your HMRC online account.

Accounted helps you file early so coding out is available as an option.

MTD is coming. Accounted is already compliant. Start free and be ready before the deadline.