HMRC Says I've Underpaid Tax: Why It Happens and What to Do

If HMRC says you have underpaid tax, the letter is almost always a P800 tax calculation or a Simple Assessment, and it means the tax collected through your payroll or pension during the year did not match the tax actually due on your total income. You do not have to accept the figures on trust — you can check them, challenge them, and in limited cases ask for the arrears to be written off under Extra-Statutory Concession A19. Most underpayments under £3,000 are collected quietly through next year's tax code rather than demanded as a lump sum.

Key points

• An underpaid tax letter is a calculation, not a penalty — there is no fine for a PAYE shortfall that arose without your knowledge.
• The usual causes are a second job, a company car or medical cover, a pension starting mid-year, savings interest, or a tax code that was simply wrong.
• HMRC can normally assess arrears up to four years after the end of the tax year, extending to six years for carelessness and twenty for deliberate behaviour.
• ESC A19 can wipe out arrears where HMRC was told about your income and failed to act on it within 12 months of the end of the tax year concerned.
• Small amounts are coded out over 12 months; larger amounts can usually be spread through a Time to Pay arrangement.

Why PAYE underpays in the first place

PAYE is a running estimate. Each payday your employer or pension provider applies the code HMRC has given them and works out tax as if that pay pattern will continue all year. It is remarkably accurate for one steady job and nothing else, and it struggles with almost everything more complicated than that.

The common triggers for a shortfall are:

• Two jobs or a job plus a pension. If the £12,570 Personal Allowance is given twice, tax is undercollected on the duplicated slice.
• Benefits in kind. A company car, fuel, private medical insurance or an interest-free loan is reported on a P11D after the year ends, so the code often catches up late.
• Starting a pension or the State Pension. The State Pension is taxable but paid gross — the tax has to come out of something else.
• Savings and dividend income. Banks report interest to HMRC. With the Personal Savings Allowance at £1,000 for basic-rate taxpayers, £500 for higher-rate and nil for additional-rate, and the dividend allowance at just £500, more people now have taxable investment income.
• Losing the Personal Allowance. Above £100,000 of adjusted net income the allowance tapers away by £1 for every £2, which codes frequently fail to track in a year when a bonus lands.
• The High Income Child Benefit Charge. This bites between £60,000 and £80,000 of adjusted net income and is collected through the tax system, not from the Child Benefit payment itself.
• Emergency or month-1 codes after a job change, which ignore what you earned earlier in the year.

In Scotland there is an extra failure point. Scottish rates apply to non-savings, non-dividend income, and the code should carry an S prefix. If an employer runs a UK code for a Scottish taxpayer, income taxed at 40% should have been taxed at 42% in the higher-rate band — a 2 percentage point gap that quietly builds an underpayment across the year.

P800, tax code change or Simple Assessment?

The form of the letter matters, because it sets your deadline and your route of challenge.

A Simple Assessment is the one to treat most seriously: it is an assessment in law, and if you disagree you generally have 60 days to query it before it becomes final. Our guide to how Simple Assessment works walks through the deadlines and the appeal route. For a P800, there is no statutory deadline to object, but the sooner you raise an error the easier it is to fix before it hits your code.

Worked example: two jobs, two Personal Allowances

Priya has a main job paying £20,000 and takes a second job paying £12,000. Both employers are given code 1257L by mistake, so the Personal Allowance is used twice.

1. Tax actually deducted. Main job: £20,000 − £12,570 = £7,430 taxable at 20% = £1,486. Second job: £12,000 is under £12,570, so no tax is deducted at all.
2. Tax actually due. Total income £32,000 − one Personal Allowance of £12,570 = £19,430 taxable. All within the £37,700 basic-rate band, so 20% = £3,886.
3. The shortfall. £3,886 − £1,486 = £2,400, which is simply 20% of the £12,000 second salary that escaped tax.

Because £2,400 is under £3,000, HMRC would normally collect it through next year's code — roughly £200 a month on top of Priya's usual deductions — rather than asking for a cheque. Note that National Insurance is not affected: Class 1 NI is worked out separately on each job, at 8% between £12,570 and £50,270 and 2% above, so there is no NI catch-up.

"It wasn't my fault" — Extra-Statutory Concession A19

This is the part most pages skip. Where the underpayment arose because HMRC failed to act on information it already held, you can ask for the arrears to be given up under Extra-Statutory Concession A19. It is a concession rather than a right, but it is applied every year.

Broadly, HMRC will consider writing off PAYE arrears where all of the following hold:

• HMRC was given the relevant information — by you, your employer, a pension payer or the DWP;
• HMRC failed to make proper and timely use of it, meaning you were not told about the arrears until more than 12 months after the end of the tax year in which HMRC received the information; and
• it was reasonable for you to believe your tax affairs were in order.

That last test is where most claims fail. If your payslips showed two full allowances, or your code obviously did not include a company car you had been driving for two years, HMRC will argue you should have queried it. If, on the other hand, you told HMRC about a pension in May, kept the letter, and heard nothing until an assessment arrived two years later, you have a genuine case.

To claim, write to HMRC quoting ESC A19, set out the dates you or a third party provided the information, and explain why you reasonably believed the tax was right. Keep it factual and chronological. If HMRC refuses, you can ask for the decision to be reviewed, then escalate to the Adjudicator's Office and ultimately the Parliamentary and Health Service Ombudsman. A19 does not generally apply to Self Assessment underpayments, where the law puts the onus on you to declare your income.

How many years HMRC can go back

The general rule is that HMRC has four years from the end of the tax year to assess tax that has been underpaid. So for 2026/27, which ends on 5 April 2027, an assessment would normally have to be made by 5 April 2031.

The longer windows only open if HMRC can show carelessness or deliberate conduct, and it has to make that case. The four-year rule cuts both ways: if you are owed money, a claim for overpayment relief also has to be made within four years of the end of the tax year, which is why it is worth reviewing old years at the same time as you deal with a bill.

Paying it back, and what to do if you cannot

There are three routes, and you usually have some say in which one applies.

Coding it out

Underpayments below £3,000 are normally recovered by adjusting your tax code for a later year, spreading the cost over 12 months of pay or pension. Higher earners can have larger sums coded out on a sliding scale, provided the deduction does not take more than half your pay. Coding out is interest-free, and it is the default for most P800s.

Paying in one go

You can settle a P800 or Simple Assessment online by debit card or bank transfer using the reference on the letter — see GOV.UK: pay your Simple Assessment bill. A Simple Assessment is normally due by 31 January after the end of the tax year, or within three months of the date of the assessment if it was issued late. Miss it and late payment interest runs, calculated as the Bank of England base rate plus a fixed margin.

Time to Pay

If a lump sum is not realistic, ask for a Time to Pay arrangement. Self Assessment debts up to £30,000 can often be set up online without speaking to anyone, spread over up to 12 months; other debts go through HMRC's Payment Support Service, where they will ask about your income, outgoings and savings. Start at GOV.UK: if you cannot pay your tax bill on time. Interest still accrues, but agreeing a plan before the deadline usually avoids penalties.

Check the figures before you pay anything

HMRC's calculation is only as good as the data behind it. Line up your P60s, any P45s, P11Ds, bank interest statements, pension statements and your Personal Tax Account, then confirm the income figures match. Check too that you were given everything you were entitled to: Marriage Allowance, higher-rate relief on personal pension contributions, Gift Aid, flat-rate expenses for your occupation and Blind Person's Allowance are all commonly missing. A single omitted pension contribution can turn an underpayment into a refund.

What to do next

Run the letter through our underpaid tax checker to rebuild the calculation from your own figures and see whether the shortfall is real, and whether it looks like an A19 case. Then check the code that caused it with the tax code checker, because an uncorrected code will simply create the same underpayment again next year. If you want to sanity-check the total tax due on all your income, including Scottish rates, the income tax calculator will do the arithmetic in full.