If you’ve had a letter from HMRC saying you owe tax, it can feel worrying. Especially if you thought everything was sorted through your wages or pension.
Take a breath. There are ways to get this sorted.
Why this happens.
If you’re paid by an employer or receive a pension, tax is usually taken off automatically through Pay As You Earn (PAYE).
Most of the time, it works. But sometimes the amount taken isn’t quite right. When that happens, HMRC contact you with what they think you owe (a calculation).
You might get:
- A P800 – this shows HMRC’s calculation after the end of the tax year
- A simple assessment (form PA302) – this is a formal tax bill
If you receive calculations for more than one tax year, don’t panic. The latest letter usually shows the total still due.
Before you do anything else, check the figures carefully. Mistakes do happen. If you don’t understand the calculation, get advice before agreeing to pay. You can do this by contacting a tax adviser or calling our helpline (if you meet our criteria).
If the amount is under £3,000.
Most of the time, HMRC will try to collect the money through your tax code for the next tax year. This means your take-home pay will be reduced each month.
Here’s an example:
- You owe £2,000 tax
- HMRC use a tax code to take the tax you owe out of your pay
- You would get about £167 less every month, over the next year.
For some people, that’s manageable. For others, it isn’t.
If doing this would leave you struggling to pay rent, bills or food, you can ask HMRC to spread the payments over a longer period. This is usually two years, sometimes three.
There’s also a safeguard: your tax code can’t take more than 50% of your wages.
If you’re on means-tested benefits, tell the relevant office about the change in your income. Your entitlement might increase.
If the amount is £3,000 or more (or if your PAYE income is too low).
If the underpayment is over £3,000, HMRC will usually issue a Simple Assessment.
Unlike a tax code change, this asks for payment directly. And it’s legally enforceable, which means that by law, you need to pay it.
But you don’t have to pay it all at once if you can’t afford to.
Ask for time to pay.
If you can’t pay a lump sum at all, you can ask to set up a payment plan. This is an affordable monthly payment plan based on what you can genuinely afford.
What to do next.
- Check the calculation carefully – make sure it’s right and get help if you it.
- Work out what you can realistically afford.
- Contact HMRC as soon as you can.
Where can I get help?
If speaking to HMRC feels overwhelming, you don’t have to face it alone.
We give free, confidential advice to people who can’t afford professional tax help. If you’re worried about paying a tax debt, talk to us. We’ll help you understand what’s happening and work out a way forward. Find out more about our helpline.
You’re not the first person this has happened to. And it can be sorted.