HMRC Income Tax Underpayment: How to Pay and Avoid Penalties 2026/27

Discovering you owe HMRC income tax is never welcome, but it is a common situation -- PAYE reconciliations, multiple income sources, and untaxed earnings all lead to underpayments. The good news is that HMRC's processes for paying and managing underpayments are well-structured, and acting quickly keeps costs to a minimum. Here is a complete guide for 2026/27.

Why Does an Income Tax Underpayment Arise?

Income tax underpayments occur most often because:

• You had multiple PAYE employments and your Personal Allowance was split incorrectly
• You received untaxed income -- rental income, savings interest, or freelance fees -- and no tax was deducted
• Your tax code was wrong, meaning PAYE deductions were too low
• You claimed allowances or reliefs that were later found to be incorrect
• State Pension or company pension income pushed you into a higher tax bracket
• You received a P11D benefit in kind that was not taxed through payroll

The PAYE Reconciliation Process

HMRC reconciles PAYE taxpayers' records after each tax year ends. Using information from employers, pension providers, and other sources, HMRC calculates whether you paid the right amount of income tax through PAYE.

If there is a discrepancy, HMRC issues either a P800 or a Simple Assessment.

P800 -- Tax Calculation

A P800 is sent when HMRC's systems detect an over or underpayment. If you owe tax, the P800 will:

• State the amount owed
• Give you the option to pay online via HMRC's website (if the amount is GBP 3,000 or less)
• Advise that if you take no action, the underpayment will be collected through an adjustment to your PAYE tax code in the following year

The P800 is not itself a demand -- it is an invitation to review and act. You should check the calculation carefully. Errors do occur, particularly around employment start and end dates, pension income, or split tax codes.

If you believe the P800 is wrong, you can contact HMRC to dispute it within 60 days.

Simple Assessment (PA302)

Simple Assessment is used where HMRC can calculate your tax liability without you needing to complete a Self Assessment return. You will receive a PA302 notice showing income, tax deducted, and the balance owed or repayable.

Common recipients of Simple Assessment include:

• Pensioners with State Pension and other income
• People with income from savings interest above the Personal Savings Allowance
• PAYE workers with small amounts of additional income

The payment deadline for a Simple Assessment is 31 January following the end of the tax year (so 31 January 2027 for the 2025/26 tax year).

Self Assessment Taxpayers

If you complete a Self Assessment return, any tax owed is shown on your return as a balancing payment due on 31 January following the end of the tax year. For 2025/26, the deadline is 31 January 2027.

Self Assessment taxpayers may also be required to make Payments on Account -- advance payments towards the following year's liability. These are due on 31 January (in the tax year) and 31 July (following the tax year).

How to Pay HMRC

HMRC accepts payment by several methods:

Online or Telephone Banking

Use HMRC's bank details:

• Sort code: 08-32-10
• Account number: 12001039
• Account name: HMRC Cumbernauld

Your payment reference must be your 10-digit Unique Taxpayer Reference (UTR) followed by K for Self Assessment, or as specified on your P800/PA302 for PAYE underpayments.

Debit Card Online

Pay at HMRC's online payment portal (gov.uk/pay-self-assessment-tax-bill). Debit cards are accepted at no charge. Credit card payments are no longer accepted by HMRC.

At Your Bank or Building Society

You can pay over the counter at your bank or building society using a payslip from HMRC. This is only available if HMRC has sent you a payslip.

Through Your Tax Code (PAYE Only)

For PAYE underpayments of GBP 3,000 or less, HMRC can collect the debt by adjusting your tax code in the following year. For example, a GBP 600 underpayment from 2025/26 might be collected through your 2026/27 code, spreading the payment across the year.

This is convenient but means you are effectively paying last year's tax over the next year. If you prefer to clear the debt immediately, you can pay online and inform HMRC so your code is not adjusted.

Time to Pay Arrangements

If you cannot pay your tax bill in full by the due date, you can arrange an instalment plan -- known as Time to Pay. HMRC assesses your ability to pay and sets a repayment schedule.

Online Self-Service (Under GBP 30,000)

If you owe GBP 30,000 or less under Self Assessment and are within 60 days of the payment deadline, you can set up a Time to Pay arrangement online at gov.uk without speaking to HMRC. The arrangement can spread payments over up to 12 months.

By Phone (Larger Amounts)

For debts above GBP 30,000 or if the online service is not available, call HMRC's Payment Support Service on 0300 200 3835. You will need to provide details of your income, expenditure, and assets.

Interest continues to accrue during a Time to Pay arrangement, but no late payment penalties apply while the arrangement is active and adhered to.

Interest on Late Payments

HMRC charges interest from the day after the payment due date until the balance is paid. For 2026/27, the interest rate is the Bank of England base rate plus 2.5 percentage points, applied daily.

Interest is non-negotiable and is not waivable unless the delay was due to HMRC error. It is charged automatically and will appear on subsequent statements.

Late Payment Penalties (Self Assessment)

For Self Assessment taxpayers who do not pay on time, HMRC charges:

• 30 days late: 5% surcharge on the unpaid amount
• 6 months late: additional 5% surcharge
• 12 months late: further 5% surcharge

These surcharges are in addition to interest and can add significantly to the total owed. A Time to Pay arrangement avoids the surcharges provided you keep to the agreed payments.

Checking Your Tax Code

If HMRC is collecting an underpayment through your tax code, check your coding notice (P2) carefully. The code should show any underpayment being collected. If the adjustment is incorrect -- for example, based on an income figure that has changed -- contact HMRC promptly to update it.

Preventing Future Underpayments

To avoid underpayments in future years:

• Check your tax code each time it changes and query anything that looks wrong
• Register for Self Assessment if you have untaxed income above GBP 1,000
• Keep records of all income sources so you can accurately report them
• File Self Assessment returns on time and pay any balancing payment by 31 January

Summary

An HMRC income tax underpayment is manageable if you act promptly. Check any P800 or PA302 carefully for errors, pay by the due date to avoid interest and penalties, and contact HMRC immediately if you cannot pay in full to set up a Time to Pay arrangement. For 2026/27 underpayments, the standard Self Assessment payment deadline is 31 January 2027.