A letter from HM Revenue and Customs demanding unpaid tax is never welcome. If one has arrived on your doormat, you are not alone. Thousands of people receive these demands each year, often for tax they had no idea they owed.
The amounts can sometimes run into thousands of pounds. It is understandable if your first reaction is alarm. But in some cases, you may not have to pay the full amount, and there are steps you can take to check whether the demand is even correct.
Why Have I Received a Tax Demand?
Most unexpected tax demands relate to underpayments from previous tax years. The most common cause is an incorrect tax code. Your tax code tells your employer or pension provider how much tax to deduct from your pay. If the code is wrong, you can end up paying too little without realising it.
Tax code errors happen for various reasons. You might have changed jobs, started receiving a second income, or begun drawing a pension alongside your salary. HMRC does not always receive the right information at the right time, and mistakes slip through. It is worth noting that HMRC sends you a notice of coding whenever your tax code changes, so checking these when they arrive can help you spot problems early.
When HMRC later identifies the underpayment, they will write to you asking for the difference. This can come as a shock, particularly if the error built up over more than one year.
If you want to understand what your tax code means and whether it looks correct, you can check it using HMRC's online services, their app, or our free Tax Code Explainer.
Not sure what your tax code means? Enter it here and get a plain English explanation of what it means, whether it is correct, and what to do if it is wrong.
Try our Tax Code Explainer free, here on this site →Do I Actually Have to Pay?
Not necessarily. HMRC has rules about when they can and cannot collect underpaid tax, depending on the circumstances and the amounts involved.
One protection is called Extra Statutory Concession A19. This can apply when HMRC failed to use information they already had and the delay in correcting the error was their fault. However, HMRC has significantly restricted the use of ESC A19 in recent years, and successful claims are now less common. Check the current guidance on GOV.UK before relying on this route, as the criteria are strict.
To have any chance of qualifying, you will usually need to show that:
- HMRC had the information needed to calculate your tax correctly
- They did not act on it within a reasonable period
- You had no reason to believe your tax was wrong
Even if the debt is valid, you may still be able to challenge the amount. Mistakes in calculations do happen. Check the figures carefully against your own records before accepting that the total is correct.
Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.
What Should I Do Next?
Start by reading the letter carefully. It should explain which tax year the demand relates to and how HMRC calculated the amount owed. Note any deadlines for challenging the demand or requesting a review, as timing matters.
Gather any relevant paperwork: payslips, P60s, pension statements, and previous tax code notices. Compare these against the figures HMRC has used. If something looks wrong, contact HMRC to query it. You can do this through your online tax account or by phone.
If you believe the demand is unfair or that HMRC made a mistake, you can ask them to review the decision. Put your request in writing and include any evidence that supports your case.
Should you accept the debt but cannot afford to pay it in one go, HMRC may agree to a payment plan, sometimes called a Time to Pay arrangement. Contact them to discuss your options sooner rather than later, as ignoring the demand can lead to further action.
Getting Help
If you are struggling to deal with the demand yourself, free help is available. Citizens Advice can offer guidance on your rights and how to respond. TaxAid provides free tax advice to people on lower incomes. For complex situations or larger amounts, consider consulting a qualified tax adviser if you can afford one.
With the right information and support, you can work out whether the demand is correct and what your options are. Always check GOV.UK for the most current guidance, as tax rules do change.
To add insult to injury I am now required to pay £2728 on three months notice for 2012 and an advance payment of £1364 for 2113 tax plus another £1364, six months later.
I have 7 pension sources. One provides about 48% of my income, with 52% from the remaining six. HMRC say that there is not enough income from my 48% provider to collect the 2012 tax due of £2728 as to do so would result in over half my income being deducted from my pension and they cannot deduct from the remaining 52%. My gross income from the 48% source is £22k, so I don't understand what they are on about.
Even if they are correct, I don't understand why further deduction is not possible from the remaining 52%. Up until now and certainly for the past ten years, PAYE has applied to the whole of my pension income.
The end result of all this is that in addition to the £481 paid to HMRC in the last month, I have to find another £5456 in the next eight and a half months but most of it by the end of January coming.
Are they correct and, if not, what can I do about it?
Thanks and regards
Michael van Brugen
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