April 20 2004. PAYE coding notices for 2004/05 indicate that the Inland Revenue has started to claim non-salary income from employees via their PAYE codes, allowing the agency to claim an effective rate of up to 50%.

The new PAYE regulations (SI 2003/2682) allow the PAYE code to be adjusted for under and overpayments not just in respect of PAYE income, but for other income and capital gains tax. The rule will affect those who earn extra cash from other sources.

Ultimately people will pay the same amount of tax, but some might experience cashflow problems. Under the PAYE procedures that have been in place for several years, the Revenue can claim up to a maximum of 50% of the employee's salary to collect underpayments through PAYE, but this has been extended to non-salary items from April.

There is a right for the employee to object and manuals issued to inspectors advise them to reach agreements on taxpayers' PAYE objections rather than forcing them to go to the commissioners.