HMRC say I have underpaid tax, what should I do?

RIFT Roundup

Don’t panic: It’s usually a simple mismatch caused by a new job, multiple incomes, or a tax code change - not a penalty for doing something wrong. Check the sums: Compare your P60, P45, and payslips against the HMRC letter before paying; data errors from employers or banks are common. Pay gradually: You often don’t need a lump sum. HMRC can adjust your tax code to collect the debt in small increments from your future monthly wages.

Getting a letter from HMRC saying you owe tax can feel worrying. In most cases it simply means that not enough tax was collected during the tax year, and HMRC is asking you to pay the difference. 

The good news: most underpayment issues can be resolved once the situation is reviewed properly. 

But in many situations the issue is caused by fairly ordinary things, such as: 

• a change of job
• an incorrect tax code
• multiple sources of income
• payroll reporting delays 

Often the amount involved is relatively small and can be repaid gradually through your tax code rather than in one large payment. 

The most important thing is to understand what caused the underpayment before taking action. 

If HMRC says you owe tax and you’re unsure what to do next, RIFT can help. We can check if you’ve been taxed correctly, help you challenge an underpayment if needed, and make sure you’re not overpaying in the future. 

If you would like to talk to an expert, give us a call and we’ll get it sorted: 01233 628648. 

What does it mean if HMRC says you have underpaid tax? 

An underpayment simply means the tax collected during the year was less than HMRC believes you should have paid. This can happen for a number of reasons and doesn’t necessarily mean anyone has done anything wrong. 

Common causes include: 

• incorrect tax codes
• having more than one job or pension
• employer payroll errors
• changes in income during the year
• untaxed income being identified later 

Sometimes these differences are discovered when HMRC reviews your records after the tax year ends. 

How HMRC tells you about underpaid tax 

HMRC usually notifies people about underpayments through one of three notices: 

1. P800 tax calculation 

A P800 letter is sent when HMRC reviews your tax for a completed tax year. 

It shows: 

• how much tax you paid
• how much HMRC believes you should have paid
• the difference you owe 

P800 calculations are commonly issued after the tax year ends on 5th April, when HMRC reconciles PAYE records.

2. PAYE coding notice 

Sometimes HMRC won’t ask for a direct payment straight away. 

Instead, they adjust your tax code so the underpayment is gradually recovered through your wages or pension during the next tax year. 

For smaller amounts this is often the easiest way to deal with it. 

3. Simple Assessment letter 

A Simple Assessment is a formal tax bill issued when HMRC calculates your tax automatically. 

This often applies to people who: 

• receive pension income
• have untaxed income
• do not normally submit a Self Assessment tax return 

The letter explains how much you owe and how to pay it.

A quick check before you pay anything 

Before paying an HMRC underpayment, it’s worth taking a few minutes to check whether the calculation looks correct. 

Start by comparing the figures in the letter with your own records, including: 

• your P60 for the relevant tax year
• your P45 if you changed jobs
• your payslips from the period HMRC reviewed 

Sometimes underpayments happen because information held by HMRC was incomplete or outdated. If the income figures or tax deducted do not match your records, it’s worth contacting HMRC before making a payment. 

Why tax underpayments happen 

Underpaid tax is more common than many people realise. In most cases it’s caused by changes in circumstances rather than deliberate mistakes. 

Here are some of the most common reasons: 

Incorrect tax code 

Your tax code tells your employer how much tax to deduct from your pay. 

If the tax code is wrong, you may pay too little tax during the year. HMRC may later correct this and ask for the difference. 

Tax codes can change because of: 

• job changes
• benefits in kind
• outdated income estimates
• multiple sources of income 

Multiple jobs or pensions 

If you receive income from more than one source, your allowances may not have been applied correctly. 

For example: 

• one employer may apply your full Personal Allowance
• another may deduct too little tax 

HMRC often identifies these differences when reconciling PAYE records. 

Emergency tax codes 

Emergency tax codes are sometimes used when HMRC or your employer doesn’t yet have complete information about your income. 

This can lead to temporary errors in tax deductions. Once your details are updated, HMRC may recalculate the tax owed. 

Untaxed income 

Income that isn’t taxed at source can also lead to underpayments. 

Examples include: 

• freelance or side income
• rental income
• savings interest above your allowance 

In these cases HMRC may identify the tax due after the end of the tax year.

How do you pay back underpaid tax? 

If the calculation is correct, HMRC will usually give you a few options for repayment.

1. Through your tax code 

For smaller amounts, HMRC often spreads the repayment across the following tax year by adjusting your tax code. 

This means the amount is collected gradually through slightly higher deductions from your wages or pension.

2. Paying the amount in full 

You can also choose to pay the amount directly through HMRC’s online payment system or by bank transfer. 

3. Setting up a payment plan 

If you cannot afford to pay the full amount straight away, HMRC may allow you to set up instalments through a payment arrangement. 

Contacting HMRC early is usually the best approach if you need more time. 

Can you challenge or appeal an HMRC underpayment? 

Yes. If you believe the calculation is incorrect, you can challenge it. 

Situations where this might apply include: 

• HMRC used incorrect income figures
• your employer made a payroll mistake
• the tax code applied during the year was wrong 

If you want to dispute the amount, contact HMRC and provide supporting evidence such as payslips or tax notices. 

Could the calculation actually be wrong? 

It’s possible. 

HMRC calculations rely on information provided by employers, pension providers and financial institutions. If that information is incomplete or incorrect, the final calculation may also be wrong. 

That’s why it’s important to compare the figures in the letter with your own records before making any payment. 

When HMRC make's mistakes

It’s worth checking the bigger picture 

Interestingly, when people review their tax position after receiving an underpayment notice, they sometimes discover something else. 

For example: 

• they were on the wrong tax code in another year
• they had unclaimed work expenses
• they overpaid tax elsewhere 

In those cases, the overall position may be different from what they expected. 

Getting help with your tax position 

Dealing with HMRC letters can feel stressful, especially if you’re unsure whether the calculation is correct. 

The important thing is not to ignore the issue. Most underpayment situations can be resolved once the details are reviewed properly. 

Contact RIFT today and make sure you’re not paying more than you should.