What happens if HMRC estimates my tax bill incorrectly?

Understanding why HMRC sometimes “estimates” your tax bill

If you’ve ever opened a letter or logged into your Personal Tax Account and seen a tax bill that doesn’t seem to match your reality, you’re not alone. HMRC sometimes issues estimated tax figures rather than calculating your liability from complete, confirmed information. That can feel alarming—especially if the number is higher than you expected—but an estimate is not necessarily the final word on what you owe.

HMRC estimates can show up in a few common contexts: when you haven’t filed a Self Assessment tax return but HMRC believes you should have; when information HMRC holds is incomplete or inconsistent; when HMRC needs to protect the Exchequer while it waits for correct figures; or where the system applies a “best guess” based on past data. In some situations, HMRC may also issue determinations or assessments based on what it thinks your taxable income or gains were, using whatever data it has available.

Understanding what happens next depends on what kind of estimate you’ve received, how quickly you act, and whether you actually owe tax (and how much). The good news is that UK tax processes include routes to challenge, correct, and replace estimates—but there are deadlines and practical pitfalls you’ll want to avoid.

Common situations where HMRC’s figures can be wrong

Before jumping into what to do, it helps to know how these errors arise. Many “incorrect estimates” aren’t random—they’re the product of missing or misapplied information. Here are some typical causes.

Missing Self Assessment returns or late filing

If HMRC believes you should file a Self Assessment return and you don’t submit it by the deadline, HMRC can issue an estimated figure for what you owe. This may be based on prior-year returns, third-party information, or an assumption about your earnings. These figures can be wildly inaccurate, especially if your income dropped, your business had a lean year, you made a loss, or you stopped trading.

This is one of the most frequent causes of big, scary numbers—because estimates in this context can be conservatively high. HMRC may prefer a figure that protects revenue until the real numbers are confirmed.

PAYE code problems and “underpayment” estimates

Employees and many pensioners pay tax through PAYE. HMRC attempts to collect the right tax over the year by using your tax code. If your tax code is wrong—perhaps because of changes in benefits, multiple employments, a new pension, unpaid tax from a previous year, or an incorrect estimate of your untaxed income—HMRC can under- or over-collect. Later, HMRC might issue an estimate of underpaid tax and try to collect it through your tax code, or issue a P800 calculation.

Because PAYE is built on predicted annual income, a mid-year change can easily produce a mismatch. For example, a one-off bonus may be treated as a pattern, or a benefit may continue in the record after it has ended.

Incomplete information about investment income

Bank interest, dividends, and other investment income may be reported to HMRC by third parties, but not always promptly or perfectly. Sometimes HMRC’s record shows an estimate, or uses last year’s figures, particularly when trying to adjust a tax code for the current year. If the actual amounts differ significantly, the end-of-year calculation can be off.

Capital gains assumptions

Capital gains tax (CGT) can create big swings. If HMRC believes you disposed of assets and realised gains, but doesn’t have full details—such as acquisition costs, allowable expenses, reliefs, or losses—it may estimate the taxable gain. The difference between a rough estimate and a properly computed gain can be substantial.

Self-employed income volatility and expense patterns

For sole traders and partnerships, HMRC may estimate profits using previous years, or based on partial data. If you had higher costs, unusually low turnover, or exceptional items, an estimate can be overstated. Conversely, if profits surged and HMRC’s estimate is too low, you may later face a larger bill than expected, plus interest.

What HMRC can do if it thinks your return is missing or wrong

When people say “HMRC estimated my tax bill,” they might mean different legal mechanisms. In practice, what happens next depends heavily on which mechanism applies. Two broad possibilities are common: (1) HMRC is producing a provisional calculation using incomplete data (often in PAYE or coding adjustments), or (2) HMRC has issued a formal assessment or determination because a return is late or missing.

In both cases, you should treat the issue seriously. Ignoring an estimated figure can lead to escalation, enforcement steps, and higher costs—even if you believe the estimate is wrong.

What happens if HMRC overestimates what you owe

An overestimate usually causes immediate stress because it may demand payment that you can’t afford or that you simply don’t believe is due. The consequences depend on whether HMRC expects payment right away, whether the figure is being collected through your PAYE code, and whether the estimate is tied to a missed return.

You may be asked to pay first, argue later

In some tax situations, the system expects you to pay the amount shown by the deadline, even if you’re disputing it. This doesn’t mean you have no rights; it means that you may need to actively seek a correction, provide evidence, or make a formal challenge. If you do nothing, HMRC may proceed on the basis that its figure stands.

If the estimate is later replaced with the correct figures and that reduces what you owe, HMRC can refund the overpayment. But the process may take time, and the burden is often on you to trigger the correction by filing the right return or supplying the right information.

Collection through PAYE can reduce your take-home pay

If HMRC is recovering an estimated underpayment through your tax code, your employer or pension provider may deduct extra tax each payday. This can be painful, particularly if the amount is wrong. You might not notice until your net pay drops, or you receive a coding notice explaining the adjustment.

If the adjustment is incorrect, you’ll want to act quickly. The longer an incorrect code runs, the more tax is collected. While you can often get it refunded or corrected, it is far easier to stop the wrong deductions early than to unwind them later.

Late filing penalties and interest can still accrue

If the overestimate relates to a missing Self Assessment return, penalties for late filing can continue to accrue until the return is submitted (and, in some cases, until liabilities are settled). Even if the estimate is too high, the failure to submit the return is a separate compliance issue. Filing the return is usually the fastest path to replacing an inflated estimate with the real figures.

Debt collection and enforcement risk

If HMRC believes a tax debt is due and remains unpaid, it can take steps to collect it. That might include reminders, demands, and potentially enforcement routes depending on the type of tax and circumstances. An overestimate doesn’t automatically stop these processes. If you receive collection letters, it’s usually wise to respond rather than assume the issue will resolve itself.

If you genuinely can’t pay the estimated amount while you work to correct it, you may need to discuss a temporary arrangement. The key point is to keep communication open while you put the correct information in place.

What happens if HMRC underestimates what you owe

An underestimate can feel like good news at first—until it becomes a problem later. If you pay too little because HMRC’s estimate was low, you may face a catch-up bill later, sometimes with interest. Depending on the context, HMRC might adjust your tax code in a later year, issue a balancing payment request, or raise an amended assessment after receiving new information.

You may receive a later bill once the correct data arrives

In PAYE, this can happen when HMRC receives updated benefit information, late P11D details, corrected pension figures, or investment income data after the tax year ends. In Self Assessment, it can happen if you filed using estimates that later prove incorrect, or if HMRC later identifies additional taxable income or gains.

Interest can apply even when the original figure wasn’t your fault

Interest is generally about late payment of tax that was due, rather than blame. So even if HMRC’s estimate contributed to your underpayment, interest can still be charged on tax paid late. There are situations where you might challenge aspects of charges or seek relief depending on the facts, but it’s important to assume that delay can cost you money.

Budgeting risk and nasty surprises

The practical impact of an underestimate is often cash-flow shock. A later bill might arrive at an awkward moment, and if you’ve built your budget around the earlier number, it can be disruptive. The safest approach is to treat estimates—especially low ones—with caution until you have confirmation of the final calculation and you understand what it includes.

How to tell what kind of “estimate” you’re dealing with

To decide what to do, you need to identify what the document or online message actually is. HMRC communications can look similar even when they represent different processes. Here are clues that help you categorise the situation.

Is it a PAYE coding notice or a P800?

A tax code notice explains how HMRC will collect tax through PAYE. It often includes estimated figures for untaxed income or adjustments. A P800 is a calculation that usually arrives after the end of a tax year telling you if you’ve paid too much or too little through PAYE.

If the issue is in PAYE, the fix may involve correcting the information HMRC holds (for example, benefits in kind, estimated interest, or employment details) and requesting a revised code or calculation.

Is it a Self Assessment statement showing a bill?

If you are in Self Assessment, your online account may show a statement of account with charges and due dates. Sometimes these charges reflect your filed return; other times they reflect estimated charges because a return is missing or a figure is provisional. If a return is outstanding, that is a flashing red light: submitting the return is often the primary solution.

Does the letter use terms like “determination,” “assessment,” or “estimated”?

Language matters. Some notices will explicitly say HMRC has made an estimate because you did not file a return. Others may describe an assessment based on information available. If the letter states you can appeal, it’s especially important to read the appeal instructions and deadlines. Even if you plan to correct things by filing a return, you may still need to protect your position procedurally.

First steps to take if the bill looks wrong

When you think HMRC’s estimate is incorrect, your goal is to replace assumption with evidence. The faster you assemble the relevant facts, the faster you can bring the figure back to reality.

1) Don’t ignore it—check deadlines and due dates

Even if the figure is clearly wrong, the document may include a due date for payment or a deadline for appealing or responding. Missing deadlines can reduce your options or increase costs. Make a note of: (a) the due date(s) for payment, (b) the deadline to appeal or request a review, and (c) any return-filing deadlines if you’re in Self Assessment.

2) Check whether a return is missing

If you’re in Self Assessment, log in and check whether HMRC shows an outstanding return for the year in question. If a return is due and not filed, filing it is usually the fastest way to correct an inflated estimate. Even if you can’t pay immediately, filing the correct return can stop the estimate from driving the narrative.

3) Compare HMRC’s inputs to your records

Often the estimate is wrong because one of the building blocks is wrong. Look at what HMRC thinks you earned and compare it to your P60, payslips, pension statements, and employment history. For benefits in kind, compare to any P11D details. For self-employment, compare to your bookkeeping records. For interest and dividends, compare to your annual tax certificates or statements.

4) Identify anything that changed mid-year

Tax estimates go wrong most often when your circumstances changed: you started or left a job, took a pension, changed working hours, received taxable benefits, moved from employment to self-employment, or had a one-off payment. Write a simple timeline of changes. This makes it much easier to explain the mismatch and ask for corrections.

How to correct an incorrect estimate in practice

The correction route depends on the context, but the underlying principle is consistent: provide accurate figures through the correct channel and request that HMRC amend its calculation or code. Here are the main pathways.

Correcting PAYE estimates

If the estimate is affecting your PAYE code or a P800 calculation, you can typically address it by correcting the underlying information. This could include updating expected income for the year, correcting duplicated employments, removing an outdated benefit, or ensuring the correct pension or employment is recorded.

In PAYE, it’s common to see errors caused by “phantom” employments that should have been closed, or by an employer using the wrong leaving date. Sometimes HMRC’s system can treat an old employment as still active and allocate allowances incorrectly. Ensuring employments are correctly marked as ended and that your current main source of income is correctly identified can make a big difference.

If you have multiple employments or pensions, HMRC may split your personal allowance across them in a way that doesn’t match your expectations. That isn’t automatically wrong, but it can create underpayments if structured badly. You can often ask HMRC to allocate allowances differently if you can justify it.

Correcting Self Assessment estimates by filing the return

If you received an estimated bill because a return wasn’t filed, the practical solution is usually to file the outstanding return as soon as you can, using correct figures. Once the return is processed, it generally replaces the estimate with the calculated liability from your submitted numbers. If your true liability is lower than the estimate, the statement should update accordingly.

If you can’t file because you don’t yet have all the information, focus on getting what you need: missing income statements, expense records, or bank interest certificates. In many cases, waiting for perfection is riskier than filing promptly with good records. Where genuine uncertainty remains, you may be able to use reasonable estimates in a return and then amend later if allowed, but you should be careful—submitting a return means you’re making a declaration, and you don’t want to guess recklessly.

Challenging an assessment when you disagree

Sometimes filing a return isn’t the whole story. You might receive an assessment or determination that you believe is wrong, or you might believe HMRC has used incorrect information even after you’ve filed. In those cases, you may need to challenge the decision formally, following whatever appeal or review process is set out in the notice.

The key point is procedural: even if you are confident the number is wrong, you should not assume HMRC will automatically fix it without a proper request, evidence, and (where relevant) an appeal lodged within the time limit.

What evidence helps prove HMRC’s estimate is wrong

HMRC responds best to clear documentation that links directly to the disputed figures. The more specific you can be, the faster the correction tends to be.

Employment and pension income

Useful documents include P60s, P45s, payslips, pension payslips, annual pension statements, and any letters showing start and end dates. If the dispute involves a benefit in kind, any employer-provided documentation about the benefit is relevant, as well as any correspondence showing when it started or ended.

Self-employment and business income

Accounts, bookkeeping summaries, invoices, bank statements (where they support turnover), and records of expenses are common sources. If HMRC’s estimate seems to ignore expenses or assumes a profit level that doesn’t match reality, being able to show a simple profit and loss summary with supporting documents can be persuasive.

Investment income

Annual interest summaries from banks, dividend statements, broker tax certificates, and ISA documentation can help clarify what is taxable and what is not. It’s also useful to identify the tax year the income belongs to—especially for interest that straddles periods.

Capital gains

For capital gains disputes, evidence typically includes contract notes, completion statements, records of purchase cost, improvement costs (where allowable), and any reliefs or losses claimed. Because CGT is detail-heavy, HMRC’s rough estimates can be especially unreliable without these documents.

What if you can’t pay the estimated bill right now?

If HMRC’s estimate is high and you can’t pay it immediately, you have two parallel priorities: (1) correct the figure as quickly as possible, and (2) manage the collection risk in the meantime.

Communicate early and keep records

Whether you contact HMRC online, by phone, or by letter, keep a record of what you said and what you were told. If you submit information, note what was submitted and when. If the issue later escalates, a paper trail can be valuable.

Consider interim payment strategies

In some situations, paying something—without accepting the estimate as correct—can reduce interest and show willingness to comply, while you work on a correction. However, you should be careful not to put yourself in hardship. If paying anything is impossible, you may need to explore a temporary arrangement while you resolve the underlying calculation.

The best approach is often to align payment with what you reasonably believe is due based on your evidence, but the right strategy depends on your cash flow and the type of charge.

Beware of compounding penalties

If the estimate is driven by a missing return, the longer the return remains outstanding, the more consequences can stack up. Even if you can’t pay, filing the return may reduce the bill and stop the estimate from inflating the situation. Many people focus on the payment and overlook the return itself, but the return is frequently the lever that fixes the number.

Can HMRC charge penalties if it estimated wrongly?

Penalties depend on behaviour and rules, not just whether the initial number was correct. If HMRC issued an estimate because you didn’t file a required return, late filing penalties can apply even if the eventual tax due is small or nil. Likewise, late payment penalties and interest can apply if tax remains unpaid past the deadline.

That said, if HMRC’s incorrect estimate or incorrect information contributed to the problem, you may have grounds to dispute certain charges in some circumstances—particularly if you can show you took reasonable steps, acted promptly, or relied on information that turned out to be wrong through no fault of your own. The details matter: what you knew, when you knew it, and what actions you took.

What if HMRC’s estimate causes hardship or serious disruption?

Sometimes an incorrect estimate doesn’t just create an annoyance; it causes real hardship. A sharply reduced net pay from an incorrect tax code, or aggressive collection based on an inflated estimate, can have significant consequences. If you’re in that position, speed and clarity are your allies.

Focus on getting the facts corrected first: the wrong employment record closed, the wrong benefit removed, the correct earnings recorded, or the overdue return filed. At the same time, explain the practical impact: you may be able to request that collection through PAYE be adjusted while the facts are reviewed, or that certain actions be paused while you supply evidence. The tone that often works best is cooperative and specific: “Here is the correct figure and supporting document; here is what the incorrect estimate is doing; here is what I need changed.”

How long does it take for corrections to show up?

Processing times vary. Some PAYE corrections can appear quickly once the right information is on the record and a new tax code is issued. Other changes depend on employers submitting updated payroll information or on HMRC processing a return or an amendment. In Self Assessment, once you file the missing return, the system may update relatively quickly, but complex cases or compliance checks can slow things down.

A practical tip is to check whether the change you’re requesting depends on a third party. If an employer has submitted incorrect information, HMRC may rely on the employer correcting it through payroll reporting. In those cases, you might need to speak to the employer’s payroll department as well as HMRC.

What happens after the estimate is corrected?

When the correct figures replace an incorrect estimate, one of three things typically happens:

First, if you overpaid based on the estimate, HMRC may show a credit on your account and issue a refund or adjust future payments. In PAYE, that may mean your code is corrected and you pay less going forward, or you receive a repayment.

Second, if you underpaid because the estimate was too low, HMRC may issue a further bill for the difference, adjust your PAYE code to collect it, or both, depending on the tax type and timing.

Third, if the estimate is replaced with the correct liability and it matches what you’ve already paid, the account will settle and the issue ends—often with a sense of relief that the scary number was only temporary.

Special scenarios that frequently confuse people

Certain situations are especially prone to estimation errors and misunderstandings. Recognising them can help you spot the likely cause faster.

Multiple jobs and emergency tax

When you start a new job without the correct starter information or if payroll uses an emergency code, you can be taxed as though you have no personal allowance or as though the job is your only income. HMRC may later reconcile the year and either refund or request additional tax. If HMRC estimates your annual income incorrectly during this period, your code can swing dramatically.

Company benefits that start and end mid-year

Company cars, medical insurance, or other benefits can distort your PAYE if HMRC’s record assumes the benefit runs all year when it only ran for part of the year, or vice versa. Because benefits affect your taxable income, small record errors can lead to notable underpayments or overpayments.

State Pension interactions

State Pension is taxable but paid without tax withheld. HMRC often collects tax on it by adjusting your PAYE code for other income sources (like a workplace pension). If HMRC’s estimate of your State Pension is wrong—or if your other income changes—your code can be off, leading to a surprise later.

Self-employment cessation or losses

If you stopped trading or made a loss but HMRC’s estimate assumes you earned profits similar to prior years, the estimated bill can be far too high. Filing the correct return, including cessation details and accurate accounts, is typically the way to reset the position.

How to reduce the chance of wrong estimates in future

You can’t control everything HMRC does, but you can reduce the likelihood of incorrect estimates by keeping your records and HMRC’s information aligned.

Keep your HMRC record up to date

When you change jobs, start a pension, stop receiving a benefit, or start receiving a new type of income, check your Personal Tax Account to ensure HMRC’s record reflects it. If you have more than one income source, verify which one is treated as your main job and whether allowances are allocated sensibly.

Review coding notices rather than filing them away

Many people ignore coding notices because they look technical. But a coding notice is essentially HMRC’s plan for collecting your tax. If the plan is based on wrong assumptions, the wrong tax will be collected. Spending a few minutes checking the estimated figures can prevent a year-end shock.

File Self Assessment on time, even if you can’t pay immediately

Late returns are a major trigger for aggressive estimates. Filing on time helps ensure the bill is based on actual figures, not assumptions. If payment is an issue, it’s usually better to deal with payment options after you’ve fixed the number. A correct bill gives you a concrete target to plan around and reduces the risk of paying too much or fighting an inflated estimate.

Maintain clean records and simple explanations

Whether you’re employed, self-employed, or both, clean records make it easier to correct mistakes quickly. When a dispute arises, being able to explain, “This is what happened, these are the amounts, and here are the documents,” is far more effective than trying to reconstruct a year of finances under pressure.

When it may be sensible to get professional help

Many estimation issues can be resolved by providing the correct information and following the normal processes. But there are times when professional advice is worth considering—particularly if the estimated bill is large, if you have complex income streams, if the dispute involves capital gains or reliefs, or if enforcement action is underway. A tax adviser or accountant can help you identify the correct procedural route, prepare a clear submission, and ensure you don’t miss a deadline that could limit your options.

Professional support can also help if you’re trying to correct multiple years at once, or if HMRC’s estimate suggests it has concerns about your compliance. In such cases, resolving the issue promptly and accurately can prevent it from expanding.

A practical checklist for responding to an incorrect HMRC estimate

If you want a straightforward plan, use this checklist as a guide:

1) Identify the document type and the tax year involved, and note all deadlines.

2) Check whether you have an outstanding Self Assessment return and file it if required.

3) Compare HMRC’s figures to your P60/P45/payslips, pension statements, benefit details, and investment statements.

4) List any mid-year changes (job changes, new benefits, new pension, stopping self-employment).

5) Provide the correct figures through the appropriate channel and request an amended calculation or code.

6) If payment is demanded before correction is processed, consider how to manage cash flow while you resolve the dispute, and keep communicating.

7) Keep records of what you submit and any responses you receive.

8) After the correction, check that your account, code, and payments reflect the updated position.

Conclusion: an incorrect estimate isn’t the end of the story

If HMRC estimates your tax bill incorrectly, what happens next is largely shaped by how quickly you respond and how clearly you replace the estimate with evidence. Overestimates can lead to demands, reduced net pay, and collection pressure, while underestimates can produce later bills and interest. In both cases, the solution usually involves identifying the type of estimate, correcting the underlying information, filing any missing returns, and meeting procedural deadlines.

The most important mindset shift is this: treat an estimate as a prompt to act, not as a final verdict. Once you pin down what HMRC assumed and why, you can usually chart a practical route back to the correct number—and, with it, a lot more peace of mind.