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HMRC internal manual

PAYE Manual

Reconcile individual: underpayments: introduction

PAYE underpayments arise if the individual has not paid enough tax during the year. This could be due to any number of reasons. For instance:

  • a change of employment or pension which results in an employer/pension payer correctly using the emergency code. Most PAYE underpayments are usually included as a restriction in the tax code for the next complete year
  • the tax code has decreased during the year
  • changing from non-Scottish to a Scottish code when the Scottish tax rates are higher than the rest of the UK rates
  • changing from Scottish to a non-Scottish code when the Scottish tax rates are lower than the rest of the UK rates

The Scottish rates only apply to 2016/17 onwards. See PAYE100035 for more information on Scottish income tax rates.

However there are circumstances where this is not possible, for example, underpayments of £3,000 or over (whether for one or more years) and / or underpayments of less than £3,000 that, due to circumstances particular to the case, cannot be collected through the tax code (PAYE12080).