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This guide explains the ways in which you can pay back the tax you owe shown on your P800 Tax Calculation or Self Assessment Calculation - either through your tax code (limits apply) or by making a voluntary direct payment. It also explains what can happen with outstanding Self Assessment debts and tax credit overpayments.
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If you're an employee or you have a company pension you will pay tax under PAYE (Pay As You Earn). This means that your employer or pension provider deducts tax from your salary or pension before you receive it. The amount of tax deducted is worked out based on your tax code.
Changes in your income or circumstances during the year may result in you not paying enough tax at the end of the tax year. When this happens, HM Revenue & Customs (HMRC) will send you a P800 Tax Calculation telling you how much tax you owe.
Understanding and checking your P800 Tax Calculation
If you owe less than £3,000 HMRC normally includes the underpayment in your tax code for the next tax year. You'll find the amount under 'Reduction to collect underpaid tax' on your PAYE Coding Notice. You'll pay the amount back in equal instalments - usually over one year along with your normal tax deductions from your pay or pension. For example, if you didn't pay enough tax in the tax year 2010-11, you'll pay back the amount you owe in the tax year 2012-13, which starts on 6 April 2012.
You'll get your new tax code early in 2012. In the meantime you don’t need to do anything more.
Common PAYE Coding Notice entries explained
How underpayments of tax affect your tax code
If you would prefer to pay the amount in full, read the later section 'Making a voluntary payment'.
You won't always be able to pay back the tax you owe through your tax code. Find out more, including what to do if the amount you owe is £3,000 or more, in the section 'When you won't be able to pay back the tax you owe through your tax code'.
If you're an employee or you have a company pension you will pay tax on your employment and/or pension income through PAYE. If you have other income such as income from rents or investments, you'll complete a tax return as well.
When you send HMRC your tax return you'll get a Self Assessment Calculation which will show you how your tax due has been calculated for a particular year or a statement which will show you all the outstanding tax you owe.
Understanding your Self Assessment Statement
The current limit for collecting tax that you owe through your tax code is £2,000 for amounts owed for the tax year 2010-11 and earlier tax years but it will increase to £3,000 for tax owed in tax year 2011-12 and later tax years. HMRC will automatically include the amount in your tax code unless you’ve asked them not to on your tax return. You'll find the amount under 'Reduction to collect underpaid tax' on your PAYE Coding Notice. If you would like to use the increased £3,000 limit to pay back tax for the tax year 2010-11 you must contact HMRC by 30 December 2011.
You will pay back the amount in equal instalments over one year along with your normal tax deductions from your pay or pension. For example, if you didn't pay enough tax in the tax year 2010-11, you'll pay back the amount you owe in the tax year 2012-13, which starts on 6 April 2012.
You'll get your new tax code early in 2012.
Common PAYE Coding Notice entries explained
If you've asked HMRC not to collect the tax you owe through your tax code you will be asked to pay it as a lump sum by the deadline shown on your Self Assessment Calculation.
Tax return deadlines and penalties
You won't always be able to pay back the tax you owe through your tax code. Find out more, including what to do if the amount you owe is £3,000 or more, in the section 'When you won't be able to pay back the tax you owe through your tax code'.
To protect you from paying unreasonable tax deductions you won't be able to pay back the tax you owe through your tax code in the following circumstances:
Also, if the amount you owe is more than £3,000 you can't pay it back through your tax code.
HMRC will write to you about other ways you can pay back the amount you owe.
If you would like to pay the amount of tax you owe in full, you will need to contact HMRC using the telephone number or address on your P800 Tax Calculation or Self Assessment Statement.
HMRC will arrange for a completed payslip to be sent to you.
You should then return the payslip to HMRC with your cheque, postal order or bank/building society draft which should be made payable to 'HM Revenue & Customs only' followed by ‘VP and your National Insurance number’.
Do not fold the cheque, postal order or bank/building society draft and do not fasten it with paper clips, staples or in any other manner.
Send your cheque and payslips to:
HM Revenue & Customs
Bradford
BD99 1YY
If you can't afford to pay the money you owe or paying it through your tax code over one year would cause you financial difficulty, contact HMRC using the address or telephone number shown on your P800 Tax Calculation or Self Assessment Calculation to discuss options for paying. They may let you spread the payments over two or three years.
Problems paying HMRC: advice for businesses, individual and tax agent
If you are on means-tested benefits, the way you pay back tax may affect your entitlement. You will need to tell your benefits provider about any changes to your income after tax or in your capital as a result of paying HMRC the tax you owe. For information on where to get help and advice see the next section 'Getting help or advice'.
If your 'net income' - income after tax has been taken off - changes or your capital goes down as a result of you paying back tax, tell your benefits provider.
Tax credits are based on income before tax is deducted and will not be affected.
If you need advice or more information a number of voluntary organisations may be able to help you - or you could consult a professional adviser (though bear in mind there may be a charge). If you have debts, there are many organisations offering free and independent debt advice over the phone or face to face.
Information on organisations that can help you with your
debt problems
HMRC can also choose to collect some overdue Self Assessment debts and tax credits overpayments by including the amount you owe in your tax code, provided that the amount outstanding is less than £3,000. Overdue Self Assessment debts and tax credits overpayments will not be shown on any P800 Tax Calculation or Self Assessment Calculation you might receive. Instead HMRC will write to you telling that they are considering changing your tax code to collect the overdue amount. Find out more by following the link below.
What could happen if you don’t pay your overdue amount?
If HMRC collects your overdue Self Assessment debt or tax credits overpayment through your tax code, the amount will be shown as 'Outstanding debt' on your PAYE Coding Notice.
Common PAYE Coding Notice entries explained
Understanding and checking your P800 Tax Calculation (PDF 125K)
Understanding your Self Assessment statement
Tax return deadlines and penalties
