Getting a notice from HMRC saying you owe tax can be worrying, but don’t panic. Tax underpayment happens when not enough tax has been deducted from your income, but there are ways to sort it out. If HMRC say you have underpaid tax, understanding why it happened and what to do next can help you resolve the issue quickly.

What does it mean if HMRC says you’ve underpaid tax?

Tax underpayment means you haven’t paid enough tax during the year and HMRC is asking you to make up the difference. This can happen for several reasons, including:

  • Incorrect tax code: If your tax code is wrong, you may not have been taxed correctly.
  • Multiple jobs or pensions: If you have more than one source of income, tax might not have been deducted properly.
  • Employer errors in PAYE deductions: If your employer miscalculates your tax, it could lead to an underpayment.
  • Changes in personal circumstances: If you don’t inform HMRC about things like starting a new job or claiming benefits, it can affect your tax bill.

How does HMRC notify you about underpaid tax?

HMRC will let you know if you’ve underpaid tax through different types of letters:

  • PAYE Coding Notice: This tells you about changes to your tax code to recover the underpayment.
  • P800 Tax Calculation letter: This explains what you owe and how to pay.
  • Simple Assessment letter: If HMRC calculates your tax bill for you, they will send you a demand for payment.

Always check that any letter you receive is genuine by looking out for official HMRC contact details.

What to do if you’ve underpaid tax

There are a few ways to pay back what you owe:

  • Through your tax code: HMRC may spread the repayment over the next tax year by adjusting your tax code.
  • Paying in full: You can make a one-off payment online or by cheque.
  • Setting up a payment plan: If you can’t afford to pay all at once, contact HMRC to arrange instalments.

If you’re unsure about your repayment options, speaking to HMRC can help you find a solution that works for you.

Can you appeal or challenge an underpayment?

If you think there’s been a mistake, you might be able to dispute it. Reasons to challenge an underpayment include:

  • HMRC miscalculated your tax bill
  • Your employer didn’t deduct tax correctly

To dispute an underpayment, contact HMRC with any supporting evidence, such as payslips or tax code notifications.

Common causes of underpayment

Tax underpayment can happen for different reasons, including:

  • Being on an emergency tax code: This can lead to incorrect deductions.
  • Earning untaxed income: If you have a side job or rental income, you might not have paid the right tax.
  • Claiming expenses or allowances incorrectly: If HMRC later decides you weren’t eligible, you might owe tax.

Need help with your tax?

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.

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