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Underpaying tax

For those who complete and file their own Self Assessment tax returns, underpaying tax can be an annual worry. After all, no-one wants to fall foul of HMRC and find themselves subject to an investigation. However, mistakes are often made and often they can be remedied without any drastic action from the tax man.

When might I underpay tax?

If you’re employed by a company, you won’t usually need to worry about tax payments, as they’ll be made via the Pay As You Earn (PAYE) scheme. However, self-employed individuals, landlords, or others that need to complete a Self Assessment tax return often have to calculate their own earnings and expenses. In such cases, simple errors on your return can result in underpayment of tax.

If you are employed and have over- or underpaid tax, you may receive a P800. This will show information such as your income, taxable state benefits, allowances and tax relief. You should check through this carefully to ensure the details are correct. This can be done using your P60 or P45 (if you changed jobs during the tax year) and your P11d if you’ve had Benefits in Kind.

If you complete a Self Assessment, any underpayments will come to light when the return is processed. You won’t get a letter from HMRC; your bill will be adjusted automatically.

How much do HMRC fine for not paying tax?

If you are employed and have underpaid your tax by between £50 and £2,999, HMRC typically adjusts your tax code for the following year to collect the necessary amount. As such, you won’t be fined for underpaying your tax.

If you owe £3,000 or more, you will need to make payment to HMRC, as they won’t adjust the code automatically. You can face fines if the payment is not made on time. With a hefty bill, paying tax that’s owed may not be easy, so it’s best to contact HMRC to find out whether a payment plan can be arranged.

If you file a Self Assessment, or your business pays Corporation Tax for example,  and there is a mistake that can be resolved quickly, HMRC may give you a call to ask about figures. In such cases you may not face any penalties. If, however, there is an obvious discrepancy, a ‘behaviour’ based system is used for inaccuracies. If HMRC feels that reasonable care has been taken to complete the return correctly, no penalty is charged. If they feel you have been careless, you may get a fine of between 0-30% of the extra tax due.

If the error is deemed deliberate, the penalty rises to between 20-70% of the extra tax due, and if the inaccuracy is deliberate and concealed, you may receive a penalty of up to 100% of the extra tax due. In other words, if you owed £2,000, you may have to repay this plus an extra £2,000.

Underpaying tax can be a source of worry for many, and the best way to alleviate this is by employing a tax accountant to complete tax returns on your behalf. A specialist, such as those at Ibiss and Co, can ensure each tax return is completed accurately and that tax is paid on time. If you’re based in Barking, Tooting and Walsall, and are searching for a ‘tax accountant near me’ our team of experienced chartered accountants are here to help.

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