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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.


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!

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