If you’ve paid the wrong amount of tax in any of the last few tax years, HM Revenue and Customs may send you a “P800 calculation“. Why might this happen? And what should you do if you receive one?
Who might receive a P800?
The Revenue use what is called a “tax code” to instruct pension companies and employers to deduct a certain amount of tax off pension and wages payments. The tax code is based on the Revenue’s estimate of your taxable income and expenses for the year, and what your tax free personal allowance should be. In some circumstances, the “tax code” is wrong, usually because the Revenue were unaware of all your financial circumstances when they calculated it. For example, you may have started to receive a new type of income in the year, or ceased receiving some income. You may have P11D benefits (like health insurance or a company car) or job expenses (like mileage, uniform cleaning or subscriptions) which haven’t been properly taken into account.
Once the Revenue receive corrected information relating to a tax year, they will recalculate the tax owing and send you their workings by way of a P800, stating how much tax is over or underpaid.
What should you do if you receive a P800?
There is no need to worry if you do receive a P800. It doesn’t mean you’ve done anything wrong and the Revenue won’t take any underpaid tax out of your bank account – certainly not without your permission.
Check the calculation is correct. Compare the figures on the P800 to your P60s ( the end of year tax summaries given you by your employer/pension company), bank statements and DWP letters. State pension per the Revenue’s calculations will be based on what you were due to receive during the tax year, rather than what you did receive (the payments are slightly behind). To calculate what you should have been paid, take one of the pension receipts in the tax year and – assuming you’re paid every four weeks – multiply it by thirteen, not by twelve, as there are thirteen payments during the year.
You might receive several years’ P800s all at the same time. If this is the case, bear in mind that the tax under or overpaid will be carried forward and combined with each successive year until a grand total is arrived at in the most recent tax year.
How do I pay or claim back the tax owing?
If you are in the fortunate circumstance of being owed tax, the Revenue will send you a cheque refund within two weeks of the P800. The Revenue may pay the money directly into your bank account if you have previously given them your bank details.
If you owe less than £3,000 in tax, the Revenue will normally arrange to collect any underpayment by adjusting your tax code, so you’ll pay back the underpaid tax through your salary or pension over several months. You’ll notice a decrease in the net amount you receive. If this happens, you don’t need to take any action as the Revenue and your employer/pension company will deal with the underpaid tax.
If you owe more than £3,000, the Revenue will write to you with instructions as to how to pay. They will normally expect the outstanding tax to be settled in one payment, however if this will cause financial hardship, give the Revenue a call and explain your situation. They may agree to let you pay in instalments.
We hope you have found this blog useful. Professional guidance should be obtained before relying on the above general advice as individual circumstances vary.