Tax calculations are now largely automated. When your tax return is submitted the HMRC computer calculates how much tax you owe, or whether a tax repayment is due, and issues a tax statement. If HMRC’s result agrees with the tax figure the software came to, everyone is happy and your tax file can be closed for another year.
However, sometimes the HMRC computer tries to be too clever for its own good. It compares your self assessment tax return to data it has collected from other sources such as interest reported by banks. Sometimes this third-party data may not be accurate, nor even relate to your own tax affairs. Once the computer has made a connection it raises a flag to indicate that the tax payable for the current year is too low, or the tax repayment too high. It will add in an ‘earlier year underpayment’ to your tax statement or PAYE code.
If this happens to you we need to get your tax statement or tax code amended. This can be done through your personal tax account or by ringing HMRC. Please let us know if any strange adjustments appear in your PAYE code.