Self-assessed: Revenue may lift the limits: Taxpayers will have choice of paying lump sum or instalments

EMPLOYEES who have to pay income tax beyond the amount collected through pay-as-you-earn may be able to arrange to have the extra tax collected through an adjustment to their PAYE code.

At the moment there is a pounds 300 limit on the amount of tax that can be collected in this way. But as part of the change to self-assessment the Inland Revenue is considering expanding the use of PAYE by raising the limit substantially.

Self-assessment will mean the Revenue will no longer make the first move and demand tax. Instead the taxpayer will fill in a tax form and either calculate the amount owing or ask the Revenue to do the arithmetic.

Half the tax liability for the year beyond what is collected through PAYE will be due in January following the end of the tax year, and the rest in July. Any balance will be due the following January.

Five million people on PAYE have to fill in a tax form. Those with small amounts of income perhaps from renting property or a tax liability on savings because they are higher-rate taxpayers may be given the choice of paying the tax due in a lump sum or spreading the payments over the tax year through the PAYE code.

Normally, those who do their own sums will have until the end of January following the end of the tax year to return forms, while those who opt for the Revenue to do the calculation have to return forms four months earlier, by the end of September. Those whose tax liability falls within the new limit set for 'coding-out', and want to pay this way, will have to complete their forms by September. But they can still do their own calculations.

The Revenue has also launched a consultative document with proposals on self-assessment for employees.

Taxpayers will be able to ask for a formal ruling on the treatment of their affairs before they fill in a tax form under a pilot study to be launched in the autumn.

The formal ruling would be on top of informal advice already available.

The ruling would only apply to events that have already taken place rather than proposed courses of action.

The consultative document Post Transaction Rulings says: 'The ruling once issued would not be a matter for correspondence or discussion.'

The rulings would not be published and would not form case law. The Revenue would be bound by any rulings favourable to the taxpayer.

For instance, the consultative document envisages that a ruling might be given on a small transaction that made sense in cost-efficiency terms but would not be valid for larger sums.

Taxpayers would not be bound by an adverse ruling. The Revenue would take up the matter once the tax form had been received. The taxpayer would then have the right of appeal against any Revenue assessment.