EaseMyTax

Underpayments explained

Where did this underpayment come from, and how will HMRC take it?

An underpayment means too little tax came off during the year. It is rarely a mistake you made: PAYE works from estimates and codes, and when something changes part way through the year the code catches up late. This page shows the usual causes with the arithmetic, how HMRC tells you, how it is collected, and what you can do.

How HMRC tells you

A P800 tax calculation

Sent after the tax year ends, usually between June and November, when HMRC reconciles what you paid against what was due. It shows income, allowances and tax for the year, and either a refund or an amount owed. It is not a bill in itself: it says what will happen next.

Tax overpayments and underpayments (GOV.UK)

A PA302 Simple Assessment

A bill. Used when the amount cannot go through a tax code: there is no job or pension to code, the amount is £3,000 or more, or the code cannot bear it. Pay by 31 January after the tax year or three months from the letter, whichever is later.

Simple Assessment (GOV.UK)

A revised coding notice (P2)

If the amount can be collected through your code, the P2 shows it as “estimated tax you owe this year” (an in-year adjustment) or “underpayment from a previous year” (collected from the following April). The figure on the notice is grossed up, so it looks larger than the tax owed.

Coding notice breakdown

The usual causes

Each with a worked example at 2025/26 rates. Yours will usually be one of these.

Wrong code, or a change made late

A second job or pension is left on a basic rate code when your total income is in the higher rate band, or a change to your code is only made months after it should have applied, so the earlier paydays were under-taxed. The PAYE system only knows what each employer sees.

A second job paying £15,000 stays on code BR (20%) all year while your main income already uses up the basic rate band. The tax due was 40%, so £3,000 was underpaid: exactly the £3,000 point at which HMRC bills rather than codes.

Two jobs or pensions both given the full allowance

Your Personal Allowance can only be used once. If two sources are both on 1257L, usually because a new employer or provider used the standard code before HMRC sent the right one and it was never corrected, you get the allowance twice.

The £12,570 allowance given twice means £12,570 of income was taxed at nothing instead of 20%: £2,514 underpaid over the year.

State Pension started and was not coded in time

The DWP pays the State Pension gross. HMRC has to take it out of your other code, and there is a lag between the pension starting and the new code reaching your employer or pension provider.

A full new State Pension of £230.25 a week starts in October. For 6 months, £5,986.50 of pension is paid with nothing coded against it, so £1,197.30 of tax at 20% is owed at the year end.

A benefit in kind not in the code

Medical insurance, a company car or a cheap loan is taxable pay, but the employer reports it on a P11D after the year ends. If it was not already in your code, the tax is owed afterwards.

Medical insurance worth £1,200 reported on a P11D but missing from the code: £240 at 20%.

Untaxed savings interest above the allowance

Banks pay interest gross and report it to HMRC after the year. The first time it goes above your Personal Savings Allowance, nothing has been collected during the year.

Interest of £3,000 against a £1,000 Personal Savings Allowance leaves £2,000 taxable: £400 at 20%.

Company car changed

The taxable value of a car depends on its list price and CO2 figure. Swap to a more expensive or higher-emission car and the code carries on collecting for the old one until the employer tells HMRC.

A car benefit that rose from £4,000 to £7,000 part way through the year, for a higher rate taxpayer: £3,000 at 40% is £1,200.

HMRC’s estimate of your income was too low

Deductions in a code are worked out at the rate HMRC expects you to pay. A bonus or a pay rise can move you into the higher rate band, which also halves your Personal Savings Allowance.

HMRC estimated £45,000 of pay and coded £2,500 of interest at basic rate with a £1,000 allowance, collecting £300. Actual pay of £55,000 was above the £50,270 higher rate threshold, so the allowance fell to £500 and the interest was taxable at 40%: £800 due, £500 underpaid.

Income went over £100,000

Above £100,000 of adjusted net income the Personal Allowance is withdrawn by £1 for every £2. If your code still had the full allowance, too little was collected.

Income of £110,000 is £5,000 of allowance lost (half of the amount over £100,000). At 40% that is £2,000 owed.

How HMRC collects it

The rules an adviser applies are fixed: under £3,000 with a job or pension to code it against, it goes through your tax code; otherwise it is billed. Put in your own figures to see which applies.

Your figures

The tax itself, from the P800 or letter: not the grossed-up figure on a coding notice.

£
Do you have a job or pension paying you through PAYE?

Something a tax code can go on. The State Pension does not count: the DWP cannot operate a code.

Lets us apply the 50% limit and the double-the-tax test HMRC uses for small sources.

£

Roughly what comes off it over a year. Leave blank if you are not sure.

£
Enter the tax owed to see how HMRC would collect it.
The 50% regulatory limit (HMRC manual)

What you can do

  1. 1

    Check the figures before you pay

    Compare every income line with your P60s, P45s, pension statements, DWP letter and bank interest summaries. A State Pension estimate, an old interest figure, or a benefit that has ended are the usual errors. Query a Simple Assessment within 60 days.

    If your P800 says you owe tax (GOV.UK)
  2. 2

    Ask for it to be coded rather than billed, or the reverse

    If it is under £3,000 and you have PAYE income, you can ask for it to go through your code so it comes out gradually. If you would rather clear it in one go, you can ask to pay directly instead.

    If your P800 says you owe tax (GOV.UK)
  3. 3

    Set up a payment plan if you cannot pay

    HMRC will usually agree monthly instalments if you cannot pay on time. Ask before the payment date, not after: interest still runs, but penalties are avoided.

    If you cannot pay your tax bill on time (GOV.UK)
  4. 4

    Ask for it to be written off under ESC A19

    If HMRC had the information it needed and failed to act on it in time, Extra-Statutory Concession A19 can cancel the arrears. All of these must be true:

    • HMRC received information from you, your employer or the DWP and did not use it within 12 months of the end of the tax year in which it arrived.
    • You could reasonably have believed your tax was in order, for example because your code appeared to cover the income.
    • You were told about the arrears more than 12 months after the end of the tax year they relate to (or sooner, in exceptional cases where HMRC failed repeatedly).

    Write to HMRC or ring the Income Tax helpline, quote ESC A19, and set out what information they had and when. A refusal can be reviewed by a different officer.

    Extra-Statutory Concession A19 (HMRC manual)
Decode a Simple Assessment letterType in the figures from a PA302 and we rebuild the bill, show where each pound came from, and work out the deadlines.Open the decoderCheck the underpayment line on your coding noticeSee what the grossed-up figure actually collects and whether the code adds up.Break down the notice