From 6th April 2012 HMRC can collect unpaid self-assessment bills, personal PAYE underpayments and Tax Credit overpayments by taking it out of your salary. HMRC are allowed to do this where a tax bill is fully or partly unpaid and the amount owing is less than £3,000. This will be achieved by amending your PAYE code number for a complete tax year and so in effect will spread the payment of the bill over twelve months. But where the bill is in dispute, you can insist that the adjustment is removed.
Any interest on the unpaid amounts can’t be collected through your PAYE code. Instead HMRC will demand a direct payment.
The new collection method shouldn't be confused with the long-standing arrangement which allows you to spread a PAYE or self-assessment tax liability by adjusting your code. The new rule which comes into force in April only applies where a tax bill has become overdue.