PAYE90026 - taxpayer end of year: taxpayer underpayments: PAYE underpayments of £2,000 and over (Action Guide)


Where an underpayment of £2,000 or more arises follow steps 1 - 8 below.

For details of how to access any of the COP functions use the [Index Of Functions] button on the left of the screen


  1. Where you use COP Function AS to make an informal tax calculation and the underpayment (excluding any potential underpayment) is £2,000 or more

  • Use SEES notes paster to make the note ‘I will be writing to you separately regarding this underpayment’, in addition to the explanation of the underpayment, in format 2A of COP Function AS
  • Carry on with the transaction so that the calculation is issued
  1. Send letter ‘Direct Voluntary Payment’- available in SEES Forms and Letters - to the taxpayer / agent, explaining why it is not possible to collect the underpayment through PAYE and asking for a voluntary payment to settle the liability

  • Follow steps 1- 2 in PAYE90011 (‘Issue a payslip for payment of tax’) - to send a payslip with the letter
  • Use SEES notes paster to make the ENOTE ‘Direct voluntary payment requested’ to record the issue of the request for a direct voluntary payment and payslip
  1. If the annual coding has not yet run, set the MCODE so that the whole overpayment recorded in CS will not be coded automatically at annual coding

  2. If the underpayment is for CY-1, keep the papers on BF until either 31 January or 6 weeks after the issue of your letter, whichever is the later

  3. If the underpayment is for CY-2 or earlier, keep the papers on BF until 6 weeks after the issue of your letter

  4. If you have received a form P211(Z) / P209 acknowledging receipt of only part payment of the underpayment

  • Follow steps 3 - 21 in PAYE90011 to deal with the form P211(Z) / P209, before taking the following action
  • If the balance of tax unpaid is less than £2,000
  • Include the balance in the coding by following the guidance at PAYE12055
  • Record the payment of tax and update the record to show the amount carried forward for coding
  • Ensure COP Function CS is updated where applicable
  • Use ENOTE ‘Voluntary payment received in part’ from the SEES notes paster to record details
  • Write to the taxpayer / agent acknowledging receipt of the payment and explain the balance of the underpayment will be collected in the tax code and in which tax year
  • Remove the MCODE signal if this was set purely because the underpayment exceeded £2,000
  • If the balance of tax unpaid is £2,000 or more and you are part of an integrated COP / SA team, set up an SA record (or re-open any dormant SA record) and issue an income tax return for the year or years in question, following the instructions in the ‘Records’ business area of the SA Manual
  • Use SEES notes paster to make the ENOTE ‘Underpayment is £2000 or more’, and the SA note ‘SA return issued’ to record the SA reference and that a tax return has been issued for the relevant years
  • If the entry appears on the list of stranded underpayments note the entry ‘SA return issued [date]’
  • If the balance of tax unpaid is £2,000 or more and you are not part of an integrated COP / SA team
  • Report the underpayment to the SA team
  • Use SEES notes paster to make the ENOTE ‘Underpayment referred to SA' to note that the underpayment has been referred to SA so that a tax return(s) can be issued
  • Write to the taxpayer / agent explaining your actions and that the SA tax return(s) will be issued shortly
  • Keep the case on BF until the SA team confirm the SA reference and issue of the income tax return(s)
  1. If you have received a form P211(Z) acknowledging receipt of payment in full of the underpayment

  • Follow steps 3 - 21 in PAYE90011 to deal with the form P211(Z) / P209, before taking the following action
  • Record the payment of tax
  • Use ENOTE ‘Voluntary payment received’ from the SEES notes paster to record your actions and collection reference number
  • Write to the taxpayer / agent confirming receipt of payment in full of the underpayment of tax
  1. If you have not received a form P211(Z) acknowledging receipt of the payment by the appropriate BF date

  • If you are part of an integrated COP / SA team set up an SA record (or re- open any dormant SA record) and issue an income tax return for the year(s) in question, following the instructions in the ‘Records’ business area of the SA Manual
  • Use SEES notes paster to make the ENOTE ‘Underpayment is £2000 or more’, and the SA note ‘SA return issued’ to record the SA reference and that an SA tax return(s) has been issued
  • If the entry appears on the list of stranded underpayments note the entry ‘SA return(s) issued [date]’
  • If you are not part of an integrated COP / SA team report the underpayment to the SA team
  • Use SEES notes paster to make the ENOTE ‘Underpayment referred to SA' to note that an SA return has been issued
  • Keep the case on BF until the SA team confirm the SA reference and issue of the income tax return(s)

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