What happens if HMRC estimates my income incorrectly?

Understanding HMRC “Estimated Income” and Why It Happens

HMRC sometimes uses an “estimated income” figure when it calculates your tax position, adjusts your PAYE tax code, sets payments on account, or decides how much tax it thinks you owe. This can feel alarming if the number is clearly wrong—especially if it’s higher than your real earnings. The important thing to know is that an estimate is not the same as a final, unchallengeable decision. It is often a working figure based on the information HMRC has available at the time, and it can usually be corrected once you provide updated details or submit the right return.

In practice, “estimated income” can show up in a few places. You might see it in your online Personal Tax Account, in letters about your tax code, in a Self Assessment statement showing a calculated liability, or in a notice that HMRC has made an assessment because it believes you haven’t filed a return. Sometimes the estimate is modestly off; other times it can be wildly inaccurate, particularly if HMRC is missing key information such as employment changes, pension income, benefits, rental income fluctuations, or business profits in a difficult year.

There are many reasons HMRC might estimate incorrectly. Employers can submit late or corrected payroll reports, you may have multiple employments in a year, or you may have stopped working but HMRC hasn’t received confirmation yet. For self-employed people, income can vary and HMRC may lean on a prior year’s figures. For taxpayers in Self Assessment who miss filing deadlines, HMRC can issue a “determination” (an estimated tax bill) that is often higher than reality. Even small reporting mismatches—wrong start or leaving dates, duplicated employment records, or a pension provider reporting the wrong taxable amount—can push HMRC’s estimate in the wrong direction.

Where Incorrect Estimates Commonly Appear

To fix a problem efficiently, it helps to identify exactly where the incorrect estimate is showing up. The same underlying mistake can trigger different consequences depending on the context.

1) PAYE Tax Code Changes

If you are employed or receive a pension, HMRC may adjust your tax code based on what it expects you will earn during the tax year. If the expected income is too high, your code might be altered in a way that increases tax deducted from each payslip. This can happen if HMRC thinks you still have a job you left, believes you have two jobs running at the same time, or assumes overtime/bonus levels that don’t reflect your real situation. Conversely, if HMRC underestimates your income, you might pay too little tax during the year and face a bill later.

2) Self Assessment “Determinations” or Estimated Assessments

If you are required to file a Self Assessment return and you don’t submit it by the deadline, HMRC may issue an estimated assessment. This is not a friendly guess; it is often based on incomplete information and can be higher than your real liability. The key point is that this estimate can generally be replaced by the correct figures once you file the outstanding return. Until then, HMRC treats the estimated amount as due and payable.

3) Payments on Account

If you pay tax through Self Assessment, HMRC may require you to make “payments on account” toward your next year’s bill. These are typically based on your previous year’s tax. If your income has fallen significantly, the payments on account can feel like HMRC is estimating your income too high. While this isn’t necessarily an “incorrect estimate” in the technical sense, the effect is similar: you may be asked to pay more than you will actually owe. There is usually a process to reduce payments on account, but it must be done carefully because reducing too far can lead to interest and potential penalties.

4) Tax Credit or Benefit-Linked Calculations

Some claims and entitlements depend on income. If HMRC is working with incorrect income figures, your award could be reduced, suspended, or later recalculated to create an overpayment. Even where another department administers the benefit, HMRC’s income data can be part of the broader picture. The practical result is that an incorrect estimate can affect your household budget beyond just the tax you pay.

What Happens if HMRC Overestimates Your Income?

An overestimate is when HMRC believes your income is higher than it really is. The immediate effects can range from inconvenient to financially stressful, depending on how large the gap is and which system is affected.

You Might Pay Too Much Tax in Real Time

In PAYE, tax is typically collected as you get paid. If HMRC has an inflated estimate, it may change your tax code so that your employer deducts more tax each payday. That means less take-home pay. The frustration is that this can happen even if you are doing everything correctly. If HMRC thinks you have additional income sources, it may reduce your Personal Allowance in the code or apply a code that collects an estimated underpayment. For someone already managing rising costs, this can be a serious cashflow problem.

You Could Receive a Sudden Demand for Payment

In Self Assessment, an overestimate can turn into a formal amount due. If HMRC issues an estimated assessment because a return is missing, it can create a large bill that appears immediately on your statement. HMRC may also pursue debt collection steps based on that figure if it remains unpaid. Even if you intend to correct it, there may be a period where the estimated amount is treated as enforceable.

Your Payments on Account Could Be Unaffordable

When income drops—perhaps due to business downturn, redundancy, illness, or reduced hours—payments on account based on a prior year can be far higher than what you will eventually owe. If you simply cannot pay, interest can accrue, and late payment penalties may be triggered in some circumstances. The stress often comes from the mismatch between what your finances can handle now and what HMRC expects based on outdated assumptions.

Knock-On Effects: Mortgages, Loans, and Proof of Income

Incorrect estimates can also cause paperwork issues. For example, if you need to provide evidence of tax paid or income, and HMRC’s records do not match reality, you may find yourself explaining discrepancies to lenders or landlords. While lenders usually rely on your submitted returns and accounts rather than HMRC’s internal estimates, confusion can arise if you download summaries or statements that reflect an estimated liability rather than your actual position.

What Happens if HMRC Underestimates Your Income?

An underestimate is when HMRC believes your income is lower than it really is. This can feel harmless at first because it often means you pay less tax during the year. But it can lead to unpleasant surprises later.

You Might Build Up an Underpayment

If your tax code is too generous because HMRC’s estimate is too low, you may take home more money now, but you could owe tax later. HMRC can try to collect an underpayment by adjusting a future tax code (sometimes referred to as “coding out” an underpayment) or through a bill if you are in Self Assessment. This can catch people off guard, especially if they assumed their payslips were always correct.

You Could Face Interest and Penalties in Some Situations

Whether penalties apply depends on why the underpayment happened and what obligations you had. If you had a duty to notify HMRC of chargeability to tax, or if you submitted incorrect information, there may be consequences. But if the issue arose purely because HMRC’s estimate was wrong and you reasonably relied on PAYE, the situation may be treated more leniently. The precise outcome depends on the facts: what HMRC knew, what you knew, and what steps you took once the issue became apparent.

Corrections Can Be Bunched into One Painful Adjustment

Sometimes HMRC corrects an underestimate by changing your tax code mid-year or in the next tax year, which can mean you are paying your normal tax plus an extra amount to recover the earlier shortfall. Even if you can afford the total, the sudden drop in take-home pay can be disruptive.

How HMRC Makes Income Estimates

Income estimates usually come from data HMRC receives or expects to receive. For employees and many pensioners, this includes real-time payroll reporting. Employers report pay and tax details through payroll submissions. If you change jobs, have multiple jobs, or receive irregular payments, the pattern of reporting can lead HMRC to projections that don’t reflect what will happen across the full year.

HMRC may also use past figures, especially for Self Assessment taxpayers. If last year’s profits were higher, HMRC may assume similar results unless you provide updated information. If you haven’t filed, HMRC may make an estimated assessment using whatever data it has, which might include bank interest reports, property data, or third-party information. None of this is perfect, and estimates are particularly vulnerable when your income is unusual, volatile, or affected by one-off events.

First Signs Something Is Wrong

People often discover an incorrect estimate in one of the following ways: a tax code notice arrives and the projected income looks wrong; a payslip shows an unexpected change in deductions; a Self Assessment statement shows a large amount due that doesn’t match your records; or your Personal Tax Account shows an employment you no longer have.

It is worth reacting early. The sooner you identify the source of the incorrect estimate, the less likely you are to suffer cashflow issues, interest, or administrative escalation. Waiting until the end of the tax year can mean you spend months paying the wrong amount of tax or dealing with a snowballing account balance.

Steps to Take if HMRC’s Estimate Is Incorrect

When you suspect HMRC’s estimate is wrong, treat it like a practical problem with a paper trail. Your goal is to establish the correct facts, provide evidence where needed, and ensure HMRC’s systems reflect your real income as quickly as possible.

1) Check Your Records and Identify the Exact Error

Start by comparing HMRC’s figure with your own records. If you are employed, check your latest payslips, your P45 (if you left a job), and your P60 at the year end. If you receive a pension, check pension payslips or annual statements. If you are self-employed, look at your bookkeeping records, invoices, bank statements, and accounts. The aim is not to produce perfect accounts immediately, but to pinpoint what HMRC has wrong: is it the existence of a job, the amount earned, duplicated employments, or a missing end date?

2) Review Your Online Personal Tax Account

Your Personal Tax Account can show employments, pensions, estimated income, and tax code details. You may be able to update estimated income for the current year, confirm job changes, or correct some details. Not all issues can be fixed online, but checking the account helps you understand how HMRC is “thinking” about your income.

3) Contact HMRC if Self-Correction Isn’t Enough

If the issue is not resolved through your online account, contacting HMRC is often necessary. When you do, have key facts ready: National Insurance number, the employer or pension payer name, payroll reference (if available), dates of employment, and evidence of the correct pay to date. Keep a note of what you told them, the date, and any reference numbers. If you send documents, use a method that provides proof of posting or delivery, and keep copies.

4) File Missing Returns as a Priority

If the problem is a Self Assessment estimate because a return hasn’t been filed, submitting the overdue return is usually the fastest route to replacing an incorrect estimated assessment with the correct figures. Even if you can’t pay immediately, filing can stop estimates from hanging over your account and can reduce the amount HMRC believes is due. It can also limit late filing penalties from continuing to build, depending on timing and circumstances.

5) Consider Reducing Payments on Account If Appropriate

If your income is genuinely lower than the previous year and you are being asked for payments on account that don’t reflect reality, you may be able to apply to reduce them. This should be based on a reasoned estimate of your actual tax for the year. Reducing too aggressively can backfire if your income rebounds or if you miscalculate, because you could face interest on the shortfall. A cautious approach is often best: reduce to a level you can justify with realistic figures and evidence.

What If HMRC Has Issued an Estimated Assessment You Can’t Pay?

This is one of the most stressful scenarios: HMRC believes you owe a large sum, you believe it’s wrong, and you can’t pay it. The correct response is usually a two-track approach: correct the figure and manage the collection risk in the meantime.

First, take steps to replace the estimate with actual figures—typically by filing the missing return or providing the required information. Second, if you’re receiving payment demands, you may need to engage HMRC’s payment support options. In many situations, HMRC will expect you to propose a realistic plan or demonstrate that the amount will change once the correct return is processed. The key is not to ignore it. Silence can lead to enforcement action based on the estimate, even if you later prove it was wrong.

Can HMRC Enforce an Incorrect Estimate?

HMRC has strong collection powers, and it can pursue amounts it believes are due. Whether it should, and whether it will, are separate questions. If HMRC has issued a formal assessment or determination, that amount can be treated as payable unless and until it is replaced, amended, appealed, or otherwise corrected within the rules that apply to that type of decision.

For PAYE coding issues, enforcement is more indirect: HMRC adjusts your tax code, and tax is collected through payroll. That can still feel like enforcement because it changes your net pay immediately. For Self Assessment, if an amount shows as due and remains unpaid, HMRC can add interest and may take steps to recover the debt.

This is why it matters to identify the mechanism behind the “estimate.” A simple projected income used for a tax code is usually quicker to update, whereas an estimated assessment due to non-filing can require the overdue return to displace it.

Will You Get a Refund If You’ve Overpaid Because of an Incorrect Estimate?

Often, yes, but the timing depends on the circumstances. If you overpay tax through PAYE because your code is wrong, you may receive a refund once your tax position is reconciled. This can happen after the end of the tax year when HMRC finalises PAYE records, or earlier if the code is corrected during the year and the payroll system refunds overpaid tax through your wages. In some cases, a repayment is issued directly.

If you overpay in Self Assessment, the overpayment can appear as a credit on your account. You may be able to request repayment, or it may be set against other amounts you owe. If there are outstanding returns or other compliance issues, HMRC may delay repayment until it is satisfied everything is in order.

What If the Incorrect Estimate Is Lower and You End Up Owing More Later?

If HMRC’s estimate was too low and you underpaid, you may receive a bill or have your tax code adjusted to collect the difference. Many people find the most frustrating part is that the underpayment is revealed long after the year in which it arose. That delay can make budgeting harder and can feel unfair.

If you are in PAYE and you had no reason to believe your tax was wrong, you may feel you shouldn’t be penalised for HMRC’s miscalculation. Outcomes vary depending on the facts, and there are circumstances where HMRC may consider whether it was reasonable for you to have spotted the error earlier. Practically, the best move is to correct the estimate as soon as you see it, rather than waiting for year-end reconciliation.

Common Causes of Incorrect HMRC Income Estimates

Knowing the most frequent triggers can help you spot and fix issues faster.

Multiple Jobs or Job Changes

Starting a second job, leaving an old role, or being paid by two employers in the same month can create confusion, particularly if one employer’s payroll submission is delayed or corrected later. HMRC might assume both jobs will continue all year or project income based on a short period of high earnings (for example, including a final payment that included holiday pay or a bonus).

Emergency Tax Codes and Starter Information

When you start a job and your employer doesn’t have complete information, you may be placed on an emergency tax code until things are updated. During that period, HMRC’s view of your income can be provisional and may not match your actual annual position.

Benefits in Kind and Company Benefits

Company cars, private medical insurance, and other taxable benefits can affect your tax code. If HMRC includes a benefit you don’t have, or fails to remove one you no longer receive, your estimated taxable income can be distorted and your code adjusted incorrectly.

Pension Payments and Lump Sums

Flexible pensions can lead to irregular taxable amounts. A one-off payment can look like a regular level of pension income, and HMRC may project it forward. That projection can lead to an incorrect estimate unless updated.

Self-Employment Volatility

For self-employed people, a strong year followed by a weaker one is common. HMRC’s reliance on last year’s figures for payments on account can feel like an incorrect estimate of your current year’s income. If you don’t reduce payments on account appropriately, you may pay too much too early. If you reduce too much and your income recovers, you may face a later shortfall.

Rental Income Fluctuations

Rental income can change due to void periods, repairs, agent changes, or rent reductions. HMRC may not know these details until you file a return. If it estimates based on a prior year, you may see mismatches in the amounts expected.

How Long Does It Take to Correct an Incorrect Estimate?

There isn’t a single timeline. Some corrections to a tax code can take effect quickly once HMRC updates its record and your employer’s payroll applies the new code. Other corrections—especially those involving filed returns, amendments, or disputed figures—can take longer.

What you can control is how complete and clear your information is. When you provide precise dates, payer details, and supporting figures, it is easier for HMRC to reconcile the record. If you are dealing with a missing return, filing it is often the most decisive action you can take.

Practical Tips to Protect Yourself

You can’t always stop HMRC from making an estimate, but you can reduce the chances of it being wrong and limit the impact if it is.

Check Your Tax Code Notices

When you receive a tax code notice, read the breakdown. It often lists assumptions about income sources, benefits, and underpayments being collected. If something is unfamiliar—an employer you don’t recognise, a benefit you don’t receive, or an income figure that seems too high—act quickly.

Keep Key Documents

Hold onto your P45s, P60s, payslips, pension statements, and relevant correspondence. If something goes wrong, these documents help you prove dates and amounts without relying on memory.

Update HMRC When Your Circumstances Change

Changes such as starting or leaving a job, beginning a pension, or stopping self-employment can affect HMRC’s estimates. Updating your details through your online account (where possible) can prevent incorrect projections.

Don’t Ignore Estimated Bills

If HMRC issues an estimated bill because it believes a return is missing, treat it as urgent. Even if it’s wrong, it may be enforceable until corrected. Filing the return and communicating promptly can stop the situation from escalating.

Budget for Uncertainty if Your Income Fluctuates

If you are self-employed or have variable income, build in a buffer for tax. Even when everything is correct, your tax payments may not align neatly with cashflow. When HMRC’s figures are wrong, that buffer can be the difference between inconvenience and crisis.

When to Get Professional Help

Many issues can be resolved without professional assistance, but there are times when speaking to an accountant or tax adviser is sensible. If the estimated amount is large, if HMRC is threatening enforcement, if you have multiple income sources, or if you are unsure which obligations apply to you, expert input can prevent costly mistakes. Professional help can also be useful if you need to negotiate a payment plan, make a formal appeal, or correct complicated records spanning more than one tax year.

What You Should Do Right Now If You Think HMRC Is Wrong

If you believe HMRC has estimated your income incorrectly, the best immediate steps are straightforward: check where the figure appears (tax code, Self Assessment, payments on account), compare it to your records, correct anything you can through your online account, and contact HMRC with clear details if you can’t fix it yourself. If the issue relates to a missing return, file it as soon as possible. If you are facing unaffordable demands, engage with HMRC rather than ignoring the problem, because estimates can trigger real-world consequences even when they are wrong.

Most importantly, keep the focus on evidence and process. HMRC’s systems are designed to work at scale, and they sometimes get things wrong when information is incomplete or messy. By identifying the source of the error, providing accurate figures, and keeping a careful record of what you submit and when, you give yourself the best chance of getting the estimate corrected and bringing your tax back in line with reality.

Final Thoughts: Incorrect Estimates Are Fixable, But Time Matters

An incorrect HMRC income estimate can mean too much tax deducted, unexpected demands, or unpleasant bills later. The good news is that these issues are often fixable. The less good news is that delays can make the situation more stressful and more expensive. Acting promptly—especially when you spot a wrong tax code, a duplicated employment, or an estimated assessment—can protect your cashflow and prevent administrative escalation.

If you take one lesson from all of this, it’s that you should treat HMRC’s estimates as something to verify, not something to assume is correct. A few minutes checking the numbers when a notice arrives can save you months of overpaying, or a nasty surprise at the end of the year. If HMRC has estimated your income incorrectly, you are not powerless—you can challenge the figure, update the record, and get back to paying the right amount of tax, no more and no less.