Calculate Your Tax Code Underpayment
Frequently Asked Questions
How does HMRC collect underpaid tax through my tax code?
HMRC reduces your personal allowance by an amount that, when taxed at your marginal rate, equals the underpayment. For example, a £1,000 underpayment at 20% results in a £5,000 reduction in your personal allowance (£5,000 × 20% = £1,000 extra tax). This spreads the collection across the following tax year.
What happens if my underpayment is more than £3,000?
HMRC generally uses the tax code adjustment route for underpayments up to £3,000. If the underpayment exceeds £3,000, HMRC may instead issue a payment request directly, or require you to register for Self Assessment to pay via a tax return. Contact HMRC or check your P800 letter for the exact collection method.
Why might I underpay tax through PAYE?
Common causes include: multiple jobs where both use the personal allowance, untaxed income (rental, freelance) not accounted for, benefits in kind not correctly coded, incorrect personal allowance (e.g. Marriage Allowance applied incorrectly), or starting a pension while still employed.
How do I read my new tax code after an underpayment adjustment?
Your tax code number represents your tax-free allowance divided by 10. If your normal code is 1257L (£12,570 allowance) and HMRC reduces it by £2,000, your new code will be 1057L (£10,570 allowance). The letter L means you have the standard personal allowance (after adjustments).
Can I pay my underpayment directly instead of through my tax code?
Yes. You can contact HMRC on 0300 200 3300 and ask to pay the underpayment directly by bank transfer or debit card instead of via your tax code. This avoids increased deductions from your payslip and clears the debt immediately.