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HMRC internal manual

PAYE Manual

Reconcile individual: underpayments: PAYE underpayments

Only underpayments of up to £2,999.99 can be recovered through the tax code.

Potential underpayments are not included in the £2,999.99 limit (whether in-year or when the year the PUP arises is formally reviewed) and it is possible that £3,000 or more can be included in a code where a potential underpayment arises. For example, where an informal calculation has been issued for CY-1 and the CY code has been reduced to include benefits in kind and a CY potential underpayment has been calculated. The CY+1 code will include the total underpayment from CY-1 and CY. See example below

Informal calculation underpayment CY-1 £2,850
Potential underpayment CY £350
Total underpayment coded CY+1 £3,200


Where an actual underpayment of £3,000 or more arises, the PAYE Regulations state that the underpayment must not be collected through the tax code. The underpayment should be collected through SA unless a voluntary direct payment is made. See Action Guide tax40057. This applies whether the underpayment covers one or more years. An SA return will need to be issued for each year for which a P800 has been issued.


Before triggering a reconciliation you must ensure that, where there is a current live employment, there is also a figure of estimated pay on the record.