Current Year PAYE Underpayments and Tax Codes - Why am I paying more tax than normal in 2017/2018?
For the 2017/18 and subsequent tax years, HMRC are collecting potential PAYE tax underpayments ‘in year’.
If your tax code number is amended and as such your tax liability increases, you may have underpaid tax from 6 April up to the date the new tax code number is operated. In previous years, you would have been notified of the potential underpayment and it would be collected via a restriction in the following years tax code number.
However, for the 2017/18 and subsequent tax years, HMRC will include a restriction in your current tax code number to collect the potential estimated tax underpayment accruing.
- A potential 2017/18 tax underpayment previously would have been collected via a restriction in the 2018/19 tax code number and/or via Self Assessment
- Under the new rules the potential 2017/18 tax underpayment will be collected via a restriction in the current 2017/18 tax code number.
There are three ‘hardship’ exceptions to this;
- The underpayment deduction cannot be more than 50% of the income
- The ‘potential underpayment restriction can’t result in a doubling of the tax liability
- The underpayment must be less than £3,000 (this figure includes any 2016/17 actual and the potential 2017/18 underpayments)
For further information please contact a member of our Tax team:
Written March 2018.