Answers · UK 2025/26
What happens if you underpay tax in the UK?
HMRC collects underpaid tax either by adjusting your PAYE tax code or issuing a Self Assessment bill. Interest applies from the payment due date. Surcharges of 5% apply after 30 days, 6 months, and 12 months of non-payment. Time to Pay arrangements are available.
Full answer
If you have underpaid tax in the UK, HMRC has several mechanisms to collect the outstanding amount. How underpayments arise: - Multiple PAYE income sources (two jobs, job + pension) where allowances are allocated incorrectly. - Benefits in kind that are not fully reflected in your tax code. - Self Assessment returns showing additional tax due. - HMRC reconciling your income after the year end (the P800 process). For PAYE taxpayers: - HMRC issues a P800 calculation showing the underpayment. - If the underpayment is under £3,000 and you are still in employment, HMRC adjusts your tax code for the next year to collect the amount over 12 months. - If the underpayment exceeds £3,000, or you are no longer employed, HMRC may issue a Simple Assessment or ask you to file a Self Assessment return. For Self Assessment taxpayers: - Underpaid tax is due by 31 January following the end of the tax year. - Interest on late payment runs from 31 January at the Bank of England base rate plus 2.5% (the late payment interest rate). - A 5% surcharge applies on any unpaid tax after 30 days past 31 January. - A further 5% applies after 6 months, and again after 12 months. Time to Pay: - If you cannot pay in full, contact HMRC before the payment deadline. - You can set up a Time to Pay arrangement to pay in instalments -- usually up to 12 months. - Interest continues to accrue on the outstanding balance during the arrangement. Penalties for deliberate errors: - If the underpayment results from a careless or deliberate error on your return, behaviour-based penalties apply (up to 100% of tax for deliberate and concealed errors).
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.