What is an Underpayment Restriction?

If you have an underpaid tax bill of up to £3,000, the amount will be ‘coded out’ and collected through weekly/monthly instalments alongside your current income tax.  

This is the most secure way for HMRC to ensure that they receive the full amount an underpaying taxpayer owes.

How do I know if I have an underpayment restriction?

You will get information about an ‘underpayment restriction’ on your notice of coding. This should marry up with the same information on either your p800 or self assessment calculation; depending on whether you are self employed or paid through PAYE.

What should I do next?

If you get an underpayment restriction on your notice of coding, you need to check three things:

1. Make sure the calculations on your notice of coding and p800 or self assessment align as you expected.
2. If you receive a K code, then you will not be able to repay the total amount within one year. HMRC will contact you to organise alternative arrangements, like paying it back over more than one year.
3. Ensure that you definitely owe the underpayment. If the situation has arisen because of errors made by your pension company, employer or HMRC then you may not be liable to pay at all. This may be the case, especially if your notice of coding is the first you’ve heard about not paying enough tax. You will have to follow the correct procedure, using ESC A19 and get this done within the deadline.