Tax Overpayments and Underpayments

It's surprisingly common to pay the wrong amount of tax during the year — whether through incorrect tax codes, changing jobs, or starting a pension. HMRC has processes to identify these discrepancies and will contact you to either refund what you're owed or collect what you owe.

Who gets notified about overpayments and underpayments

If you've paid too much or too little tax by the end of the tax year (5 April), HMRC will send you either a tax calculation letter (also known as a P800) or a Simple Assessment letter between June and March of the following tax year.

You'll only receive one of these letters if you are employed or receive a pension.

If you're registered for Self Assessment, you will not receive these letters. Your bill is adjusted automatically when you complete your tax return, and any overpayments or underpayments are dealt with through that process.

Why you might have paid the wrong amount

There are several common reasons why your tax might be incorrect:

Tax calculation letter (P800) scenarios:

• You were put on the wrong tax code, for example because HMRC had incorrect information about your income
• You finished one job and started a new one, and were paid by both employers in the same month
• You started receiving a pension at work
• You received Employment and Support Allowance or Jobseeker's Allowance

Simple Assessment letter scenarios:

• You owe tax that cannot be automatically taken out of your income
• You owe HMRC more than £3,000
• You have to pay tax on your State Pension

If you've overpaid tax

Your P800 tax calculation letter will explain how you can get your refund.

Claiming online

If your letter says you can claim online, you'll need your P800 reference number and National Insurance number. You can choose between an online bank transfer or requesting a cheque.

You can also claim through your personal tax account or the HMRC app if you have a UK bank account, or by contacting HMRC directly.

Timing for refunds:

• 5 working days if you've claimed online
• 6 weeks if you've asked HMRC to send you a cheque

Automatic cheque refunds

Some tax calculation letters will state that HMRC will send you a cheque automatically. You don't need to do anything — the cheque will arrive within 14 days of the date on your letter.

If you're owed tax from more than one year, you'll receive a single cheque for the entire amount.

If you've underpaid tax

How you pay depends on how much you owe and your circumstances.

Automatic collection through your tax code

HMRC will usually collect underpaid tax automatically by changing your tax code. This increases the tax deducted from your wages, salary or pension, normally in equal instalments over 12 months from the start of the following tax year.

This automatic collection happens if you:

• Pay Income Tax through an employer or pension provider
• Earn enough income over your Personal Allowance to cover the underpayment
• Owe less than £3,000

Simple Assessment

If you owe more than £3,000, or the tax cannot be collected automatically, you'll receive a Simple Assessment letter instead. This will tell you how much you owe and the deadline by which you must pay.

Paying early

Even if HMRC plans to collect the underpayment through your tax code, you can choose to pay what you owe before the start of the following tax year if you prefer.

If you haven't received a letter

If you think you've paid too much tax but haven't received a tax calculation letter, you can claim a refund directly from HMRC.

If you think you owe tax but haven't received a letter, contact HMRC to notify them.

If you think the calculation is wrong

If you believe the amounts used in your tax calculation are incorrect, contact HMRC as soon as possible. You'll need to explain which amounts you think are wrong and what they should be.

HMRC will review your case and either:

• Send you a new calculation if they agree with you
• Contact you to explain why they believe the original calculation was correct

Understanding your rights

It's important to check any tax calculation or Simple Assessment letter carefully when you receive it. Look at the income figures, benefits, and deductions shown to ensure they match your records.

Keep payslips, P60s, and records of any benefits or additional income, as you may need these if you challenge a calculation.

HMRC aims to get tax right first time, but mistakes can happen on both sides. The correction process exists to ensure you pay the right amount — nothing more, nothing less.

Sources

• Tax overpayments and underpayments
• Check your Simple Assessment tax bill
• Pay your Simple Assessment tax bill
• Claim a tax refund
• Pay your tax calculation (P800)
• Your personal tax account
• Download the HMRC app
• Income Tax rates and Personal Allowances
• Tax codes

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.