Starting a new business? Get 40% off our accountancy services for 3 months! 😀

x

It is possible to pay insufficient income tax during a financial year, which runs from 6th April to 5th April the following year. If you are employed, you will pay tax through the Pay As You Earn (PAYE) system using a tax code, which is calculated by HM Revenue and Customs (HMRC) and allocated to you. If you are self-employed, you will generally pay two Payments on Account during the year, which are paid on 31st January and 31st July. If any tax remains unpaid, HMRC will demand payment.

PAYE underpayments

To try and make sure that you will pay the correct amount of tax during the year, check the tax code that given to you by HMRC. Make sure that any deductions are correct and that you have been allocated the right amount of personal allowances for the year.

At the end of the year, HMRC will carry out reconciliation of all taxpayer records. If you have paid the correct amount of tax, you won’t be informed. However, a P800 calculation will be issued if you haven’t.

For those who have paid too much tax during the year, a repayment will be issued shortly after the calculation has been issued. Underpayments that total less than £3,000 can usually be collected through the following year’s tax code. By including the underpayment as a deduction from the allowances that you are entitled to, the underpayment will be collected back over 12 months.

When you receive the following year’s tax code, check that the amount included is correct. It will appear to be much more than the actual underpayment, but this is because the amount indicated will be subject to tax at your highest rate, eventually paying back the money you owe. For instance, an underpayment of £200 will be shown as £200 x 100 and divided by your highest tax rate. If the rate is 20%, the amount included in your tax code would be £1,000, which at this percentage is £200.

Voluntary payment

You can volunteer to pay the amount owed at any time by requesting a payslip from HMRC. Use this to send the amount owed by cheque, postal order or bank draft to the address that was indicated on the P800 calculation.

Self-assessment

An underpayment of tax will have to be paid by 31st January as a balancing payment. However, if the amount is less than £3,000 and you pay tax through PAYE, you could ask to have it included in the next year’s tax code.

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

More posts by this author
guest
0 Comments
Inline Feedbacks
View all comments

Read more posts...

June 2022 Client of the Month: Manea Kella

This month we spoke to Adrian Manea, architect and director at Manea Kella, a London based RIBA Chartered architecture and interior design…

Read More

Succession Planning for Business Owners: What Comes Next?

When you own a business, it’s extremely normal to feel like you’re surviving one day to the next – ‘winging it’, as…

Read More

The Accountancy Partnership – Our Positive Reviews

Here at The Accountancy Partnership, we’re proud of our customer reviews The reviews we receive from our customers show how hard we…

Read More
Back to Blog...

Confirm Transactions

The number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?

Yes, submit my quote
No, let me change it

Please contact our sales team if you’re unsure

VAT Returns

It is unlikely you will need this service, unless you are voluntarily registered for VAT.

Are you sure this is correct?

Yes, the business is VAT registered
No, let me change it

Call us on 020 3355 4047 if you’re not sure.

Bookkeeping

You only need this service if you want us to complete the bookkeeping on your behalf.

Would you prefer to complete your own bookkeeping?

Yes
No

Call us on 020 3355 4047 if you’re not sure.