Originally, HM Revenue & Customs could only collect actual underpayments of tax for an earlier tax year via an adjustment through your tax code. However, a recent change has meant that HM Revenue & Customs can now include estimated in year adjustments to your tax code to allow them to collect tax they believe that you will have to pay for that tax year. The tax will be collected in equal instalments through your salary/pension for the remainder of the tax year.
HM Revenue & Custom’s intention is that this will result in the majority of taxpayers paying the correct amount of tax by the year end. If you receive a PAYE coding notice with an underpayment restriction included, you should review this carefully and check what the underpayment relates to.
If the underpayment relates to the current tax year (2018/19), taxpayers should check that they know why the estimated underpayment has arisen and that the estimated figure included by HM Revenue & Customs in their coding notice seems reasonable. If you do not agree with the figure or require any further information, you should contact HM Revenue & Customs, or your Tax adviser, if you have one.
You can either choose to leave the estimated underpayment in your coding notice, or ask HM Revenue & Customs to remove it. If you remove the underpayment from your current coding notice, any tax underpayment for the year will likely be collected through a coding notice for a later tax year.
Taxpayers should be aware that the estimated underpayment for the current year should not be added on to the total tax due for the year. There have been instances where the estimated underpayment has been added to the actual underpayment of tax for the year, resulting in more tax payable than is actually due. In these cases, it is advised that you contact HM Revenue & Customs, or your Tax adviser.
Where the underpayment restriction relates to an earlier tax year up to 2017/18, then HM Revenue & Customs should have advised you previously of this actual underpayment via form P800 PAYE tax calculation. Alternatively, if you have elected to have any tax collected through your PAYE coding notice from your Self Assessment Tax Return, then the underpayment may relate to this.
It is not possible to get this underpayment restriction removed from your PAYE coding notice as this is an actual underpayment of tax for an earlier year. The purpose of this restriction is to collect the tax due in equal instalments via your salary/pension, rather than paying the tax due in one lump sum.
Rennie Welch LLP accepts no liability on the basis of this article and professional advice should always be sought based on specific circumstances. For advice or assistance in relation to any issues raised in this article please contact Magnus Leonard at Rennie Welch LLP either by email at email@example.com or by telephone on 01573 224391.
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