What to Do If You’ve Underpaid Tax in 2026

Reviewed by Ed WilkinsonLast updated: March 10, 2026 4:19 pm

a sticky note with the words "tax time" written on it along with a clock

Image credit: Nataliya Vaitkevich @Pexels

In this article:

Understanding How Underpayment Occurs
Steps to Rectify Underpaid Tax
Preventing Future Underpayments
A Financial Adviser Can Help

Realising you’ve underpaid tax can be stressful. Act promptly to limit interest and avoid potential penalties. This guide explains the practical steps to take in 2026 and where to get help.

Understanding How Underpayment Occurs

Underpayment of tax can occur for various reasons, often from simple mistakes or misunderstandings about how tax is calculated. Common causes include errors in your PAYE tax code (for example, where HM Revenue and Customs (HMRC) has not yet reflected changes in your circumstances), incorrect or missing information on a tax return, or too little tax being deducted at source from pay or pensions. HMRC may tell you about an underpayment via a P800 tax calculation¹, a Simple Assessment², or through your Self Assessment³ statement.

For self-employed individuals, estimating advance payments can be challenging. Payments on account (due each 31 January and 31 July) are intended to cover the expected liability based on the previous year’s bill. If your income increases or a prior return is corrected, you may face a balancing payment when the actual liability is calculated.

Factors Influencing Tax Underpayment

Several factors can influence whether you end up underpaying tax:

Changes in income: Pay rises, a new or second job, benefits in kind, or rental/savings income that is not reflected in your tax code or payments on account.
Changes in personal circumstances: Marriage or civil partnership (including eligibility for Marriage Allowance⁴), separation, or becoming liable to the High Income Child Benefit Charge⁵ can all affect what you owe.
Administrative errors: Mistakes in applying the correct tax code by employers or delays/errors in HMRC records can lead to under- or overpayments.

Making Tax Digital⁶ (MTD) for Income Tax⁷ is being phased in. From April 2026, self-employed individuals and landlords with total qualifying income over £50,000 must keep digital records and send quarterly updates using MTD-compatible software. Those with £30,000 to £50,000 will be mandated from April 2027. While MTD should help people get their tax right, moving to new software and quarterly reporting can still lead to errors if figures are incomplete or misunderstood.

In 2026, interest on unpaid tax is charged at HMRC’s late payment interest rate, which is linked to the Bank of England base rate⁸ (base rate plus 2.5 percentage points). Because the rate can change, it is sensible to check the current rate before deciding how to pay.

Understanding these factors and how they affect your position helps you rectify underpayments promptly. Regularly reviewing your tax affairs, ideally with a qualified tax adviser or accountant, can help you avoid pitfalls and stay compliant with current rules.

Steps to Rectify Underpaid Tax

First, confirm the underpayment by reviewing HMRC’s calculation. If you are not in Self Assessment, this may be a P800 or a Simple Assessment; if you complete Self Assessment, check your SA302 tax calculation and statement of account. These explain how much is owed and why. If anything is unclear, ask HMRC or seek advice from a qualified tax professional.

Contact HMRC

Once you understand the underpayment, contact HMRC promptly. Discuss the reason for the shortfall and correct any missing or inaccurate information. Have relevant documents to hand, such as payslips, P60/P45, P11D, bank interest summaries and your tax return, to make the call more efficient.

Arrange Payment

There are several options to settle the underpaid tax:

Immediate Payment: If your finances allow, clearing the balance straightaway stops further interest accruing. HMRC charges late-payment interest on outstanding amounts, set at the Bank of England base rate (base rate plus 2.5 percentage points). Prompt payment is usually the most cost-effective option.
Payment Plan: If you’re unable to pay the full amount at once, HMRC may allow you to spread the cost through a Time to Pay arrangement⁹. For many Self Assessment taxpayers, this can be set up online if you owe up to £30,000, have filed your latest return and have no other payment plans in place. Interest still applies, but instalments can make the debt more manageable.

When arranging a payment plan, be realistic about your monthly budget so you can keep up with payments; missed instalments can result in penalties and additional interest. In some cases, HMRC may instead collect smaller underpayments by adjusting your PAYE tax code in a later year (‘coding out’), subject to limits and deadlines; any such change will be shown in your coding notice.

Amend Future Payments

If you are self-employed or have other income that is taxed through Self Assessment, it is crucial to review and possibly adjust your payments on account. These are required when your last bill exceeded £1,000 and less than 80% of your tax was collected at source. You can ask HMRC to reduce payments on account if you expect lower profits, or make voluntary top-ups if you expect higher income, to reduce the risk of interest on a shortfall.

Reviewing and Adjusting Tax Codes

For those who are employed, ensuring that your tax code is correct can also prevent underpayments. Tax codes can change during the year when HMRC receives new information, but they can be wrong if details are missing or out of date.

Check the code shown on each payslip and in your Personal Tax Account or the HMRC app, which also explains what the code includes. If something looks incorrect, for example, benefits in kind, job changes or estimated untaxed income, report it to HMRC promptly so the code can be updated.

By taking these steps, you can address and rectify underpayments in a tax-efficient manner while avoiding additional financial burdens. Regular check-ins with a qualified tax adviser or accountant can also provide guidance and help in maintaining tax compliance and financial stability.

Preventing Future Underpayments

Ensuring that HMRC has your most up-to-date information is crucial in preventing tax underpayments. Tell HMRC about changes that affect your tax position, such as starting or stopping a job, benefits in kind, significant fluctuations in income, Marriage Allowance eligibility, or circumstances that affect Student Loan repayments or the High Income Child Benefit Charge. Such updates help maintain the accuracy of your tax code and avoid unexpected tax bills.

Importance of Accurate Tax Code

Regularly checking your tax code helps you understand the deductions made from your income and spot issues early. While HMRC updates codes to reflect new information, it is ultimately your responsibility to confirm these updates are correct for your circumstances.

How to Verify Your Tax Code

Use your Personal Tax Account or the HMRC app to view your current code and what it includes. Cross-check it against your payslips and any coding notices (P2). If discrepancies arise, contact HMRC directly to rectify the issue promptly.

Professional Guidance on Tax Matters

Seeking advice from qualified tax professionals is particularly beneficial if you have complex tax affairs—for example, multiple jobs, foreign income or capital gains. Professionals can help you complete returns accurately and ensure you claim all reliefs and allowances you are entitled to. They can also provide representation as your authorised agent in dealings with HMRC.

Choosing the Right Tax Adviser

Selecting a suitable adviser involves verifying their credentials and ensuring they are registered with a recognised professional body, such as the Chartered Institute of Taxation (CIOT), the Association of Taxation Technicians (ATT) or a recognised accountancy body (ICAEW, ICAS, ACCA). If you also need regulated investment advice, ensure the firm is authorised by the Financial Conduct Authority (FCA).

By keeping personal information up to date, regularly checking tax codes, and seeking professional tax advice when necessary, you can significantly reduce the risk of tax underpayments and the stress associated with them. Regular updates and professional oversight ensure compliance with tax regulations and help maintain your financial stability.

A Financial Adviser Can Help

Understanding and managing your tax affairs can be daunting. If you are unsure about your tax position or how to deal with an underpayment, a qualified tax adviser or accountant can provide guidance, liaise with HMRC as your agent, and help you plan repayments within your budget. A financial adviser can also support broader budgeting and financial planning.

Tax professionals are equipped to navigate complex HMRC rules and can provide tailored advice based on your circumstances. Financial advisers may offer tax-aware planning where it intersects with pensions, investments and protection. Always check the scope of services on offer.

At FinancialAdvisers.co.uk, we can connect you with a Financial Conduct Authority (FCA) authorised financial adviser in your area. For help with tax return preparation or direct dealings with HMRC, you may prefer to work with a Chartered Tax Adviser (CIOT) or a qualified accountant. Always verify an adviser’s credentials and that they offer the specific service you need.

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