At the end of each tax year, HMRC reconciles millions of taxpayer records to check that the correct amount of tax has been paid. If the correct tax code has been operated and HMRC is aware of all income, the right amount will have been paid. It is possible that some people may have paid too much tax, and this will be reimbursed after the end of the tax year. It is also possible that some haven’t paid enough tax.
When will you have an underpayment of tax?
There are a number of reasons why you may not have paid enough tax. These include receiving company benefits and not informing HMRC immediately. If your tax code is adjusted part way through the year, not enough tax will be paid on the company benefits. This also applies to other deductions you may have in your tax code.
If you start to receive the state pension, inform HMRC immediately as this is taxable and needs to be included in your tax code straight away. If income increases, this can also result in not enough tax being paid, especially if that income has been included in your tax code, like rental income.
How is an underpayment of tax collected?
If the amount you owe is £3,000 or less, you will be able to have the amount included in your tax code for the next tax year. If the amount is greater than £3,000, you will be asked to make a voluntary payment. If your underpayment of tax isn’t going to be included in the next year’s tax code, you will be sent a payment slip accompanied by a letter stating the amount owed. If paying the underpayment of tax will cause hardship, you can contact HMRC to ask for the underpayment to be collected over two or three years.
If the underpayment is discovered during the tax year
If HMRC recognises part way through a tax year that you may not pay enough tax, they will alter your tax code so that you pay the right amount of tax from the date that your code is adjusted. The remainder of the tax that has been underpaid will be collected the following year. HMRC will also send you notice of the potential underpayment, telling you how it intends to collect it.
At the year end, HMRC will verify the actual amount that has been underpaid, as this could alter during the year. You are advised to check that all figures are correct when you receive the notice of coding.
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