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  • Paying tax you owe through your tax code

Paying tax you owe through your tax code

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 through your tax code (limits apply). It also explains what can happen with outstanding Self Assessment debts and tax credit overpayments.

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Paying tax through PAYE if you don't complete a Self Assessment tax return

If you're an employee or receive 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 installments - 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 2012 to 2013, you'll pay back the amount you owe in the tax year 2014 to 2015, which starts on 6 April 2014.

You'll get your new tax code early in 2014. 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

You can also pay the full amount by making a voluntary direct payment

Read more about paying your tax by voluntary direct 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 within this guide called 'When you won't be able to pay back the tax you owe through your tax code'.

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If you pay tax through PAYE and complete a Self Assessment tax return

If you're an employee or you receive 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.

How to pay Self Assessment

Understanding your Self Assessment Statement

The limit for collecting tax that you owe through your tax code is £3,000. If you send your tax return online by 30 December, or a paper tax return by 31 October, 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. 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 2012 to 2013, you'll pay back the amount you owe in the tax year 2014 to 2015, which starts on 6 April 2014.

You'll get your new tax code early in 2014.

Common PAYE Coding Notice entries explained

Contact HMRC

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'.

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Self Assessment debts and tax credits overpayments through your tax code

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

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Paying the High Income Child Benefit Charge through your tax code

You may be liable to the High Income Child Benefit charge if you, or your partner, have an individual taxable income of more than £50,000 and one of you is entitled to receive Child Benefit or contributions towards the upkeep of a child.

Find out more about the High Income Child Benefit charge - the basics

If you are liable to the High Income Child Benefit charge you can choose to pay your High Income Child Benefit Charge through your tax code for the year starting 6 April 2013. If you choose to pay the tax charge through your tax code you will still need to complete a Self Assessment tax return.

Introduction to Self Assessment

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Class 2 National Insurance Contributions through your tax code

From April 2014 HMRC may collect outstanding Class 2 National Insurance contributions by adjusting your tax code, if you are in PAYE employment or receiving a UK-based private pension.

If you do not pay or contact HMRC after you get a payment request they may send you a PAYE Coding Notice between January and March 2014. This will show the Class 2 National Insurance contributions debt to be collected through your tax code from April 2014.

If you think your payment request might be wrong, for example because you have stopped being self-employed you must tell HMRC.

Find out more about what you need to do if you've stopped trading

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:

  • you don’t have enough PAYE income to enable HMRC to collect it
  • you would pay more than 50 per cent of your PAYE income in tax
  • you would end up paying more than twice as much tax as you normally do each time you receive your pay or pension

If the amount you owe is more than £3,000 you can't pay it through your tax code.

If you send a paper Self Assessment tax return after 31 October, or an online return after 30 December, HMRC can't collect the tax through your tax code.

HMRC will write to you about other ways you can pay the amount you owe.

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What to do if paying the tax you owe will cause financial difficulties

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

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What to do if you are on means-tested benefits

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.

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Getting help or advice

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 (there may be a charge). If you have debts, there are organisations offering free and independent debt advice.

Information on organisations that can help you with your debt problems

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More useful links

Understanding and checking your P800 Tax Calculation (PDF 125K)

Understanding your Self Assessment statement

Tax codes

Tax return deadlines and penalties

What could happen if you don't pay HMRC?

Paying the tax you owe by making a voluntary direct payment

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