Underpayment of Tax

[Morkel123]

Hi,

 

I was informed in January that my tax was wrong for the year due to wrong code been used. Mix up with bureau and employer. This is around £2,800.

 

I rang HMRC to make them aware and although it is not my fault I accept that it is my responsability to check and I have no problems paying it back. But due to messy divorce my payments and payslips went to my ex's account and address.

 

My question is when the end of year forms gets submitted to HMRC and the underpayment is known to them will I just receive a letter to say what I owe? Or will the employer get a letter and will I be able to pay this back over 12 months through my coding?

 

Thanks

[Gbarbm]

Hi Morkel,

 

When HMRC discover an underpayment of tax, they include that underpayment in the code number for the forthcoming tax year - they enter an underpayment restriction (UPR) which is the underpayment amount multiplied by your top rate of tax (20%, 40% or 45%)

 

You will receive a P2 (notice of coding advising you of this) which will contain an explanatory note.

 

So if your underpayment is £2800 and you are a basic rate (20%) taxpayer the underpayment retriction will be £560

(2800 x 205 = 560)

This underpayment restriction will collect additional tax throughout the rest of the tax year by taking some extra tax from your wages every week or month.

At the end of the tax year once the P60 details have been issued, HMRC will check the position to establish that the correct amount of tax has been recovered

[Morkel123]

Thanks - So does that mean they will take £560 extra this tax year and the rest the next?

 

Will employer be written to or just myself? I think I have read that they will write to employer if I ask them to. But I dont as I have been through it with them. I just dont want HMRC to write to them as will look like I have asked them too and due to redundancies etc I dont want to draw my attention to employer. I know this has no bearing on those decisions but if they just write to me and take it though coding then that is fine.

[Gbarbm]

HMRC will only send a copy of the notice of coding to the employer, form P6.

This will not show how the code is made up. The employer receives these forms in the course of normal day to day payroll from HMRC so that the employer knows how much tax to deduct from wages.

 

The £560 is a restriction designed to collect all of the underpayment (560 divided by 20% = £2800) it is deducted from the personal allowance so that you get less free pay against your wages thereby increasing the tax deductions.

So all being well, the amount should be fully collected by the end of next tax year.