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Underpaid tax?

Receiving a notification of underpaid tax can be a very nasty - particularity given that the amounts are often hundreds or even thousands of pounds. If you have received a letter from Her Majesty's Revenue and Customs stating that you owe tax, you have a few different options. Here is some advice to help...

How have I underpaid tax?

It can be difficult to understand how you underpaid tax, especially given that in the UK, it's generally employers who organise taxation. The most likely reason for having underpaid tax is that you were on the wrong tax code. This means that you were getting taxed at the wrong rate.

What if I want to dispute the amount?

You will have the opportunity to dispute the tax demand. The course of action you take depends on your circumstances, but the letter from HMRC should explain who to contact and what to do if you think that the tax demand is incorrect.

How can I pay up?

There are quite a broad range of options for making tax payments to HMRC. You can pay be cheque, postal order, banker's draft, bank transfer or debit card.

Do I need to pay it all at once?

No, you'll rarely be asked to pay all the underpaid tax in one go unless it is a very small amount. In most cases HMRC will lower your tax credits until the amount is recouped. In others you will be able to pay by instalments. If the amount is very large, you may be asked to agree to a payment plan.

Is there any room for negotiation on how I pay the underpaid tax?

Yes, in most cases HMRC will be quite flexible with regards to how and when you pay the tax. Some of the options may include being able to pay over the course of two years, or having a break in payment if you're suffering financial difficulty.

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