HMRC’s tax calculation errors: why contractors must check their bill now

Press reports that HMRC is contacting thousands of taxpayers as it manually reviews 107,000 tax calculations from 2025/26 that it suspects could be wrong are understandably causing concern. While the headlines focus on how many incorrect tax calculations might be in circulation, contractors should be alert about errors in their own next tax bill, given many now move between limited company contracting and umbrella company employment in the same tax year.

The reality in 2026/27 is that contracting is no longer straightforward. A contractor may spend part of the year working through their own limited company — a personal service company (PSC) — on Outside IR35 assignments, move into an umbrella arrangement for an Inside IR35 role, and then return to the PSC model later in the year. Each move introduces different payroll arrangements, tax codes, pension contributions and reporting obligations. The more moving parts involved, the greater the risk of discrepancies between your records and HMRC’s. And that's before it even fesses up to a computer flaw in its system dating back to 2021 that results in taxpayers being overcharged, writes Carl Bridges, an accountancy expert with 15+ years’ experience in contractor tax affairs, and the operations director at Caroola Accountancy.

Overcharging by HMRC, as an issue, becomes even more relevant as Making Tax Digital (MTD) expands. More frequent submissions required of contractor limited companies (MTD VAT),  as well as sole traders and buy-to-let investors (MTD ITSA), should improve accuracy over time. But if incorrect information enters the digital tax system, those errors can potentially flow through more quickly unless identified and corrected.

How much could HMRC overcharging cost limited/umbrella contractors?

There is no standard amount that a limited or umbrella company risks being overcharged, despite an example of £40 in a case outlined by The Telegraph.

For some taxpayers, our tax practice currently expects the difference may indeed be relatively small — perhaps arising from tax code discrepancies, PAYE adjustments or timing differences.

Which contractors face the biggest risk of overcharging?

For other HMRC customers, and we include contractors in this camp, the impact could be more significant, particularly where:

• Multiple employments have existed during the year
• An individual has moved between umbrella and PSC arrangements
• Pension contributions have not been correctly reflected
• Employment expenses or tax reliefs have been missed
• PAYE income has been duplicated or incorrectly allocated.

The overcharged amount will always depend on the individual’s circumstances and the nature of the error.

What should limited company contractors review?

PSC contractors, i.e. those operating through their own limited company, should consider the following five, especially as HMRC is reportedly unable to say how many tax bills will need to be corrected before being sent back. The five are, whether:

1. The salary reported through payroll matches HMRC’s records
2. Dividends and their totals have been correctly included on their Self-Assessment return
3. Pension contributions have been correctly reflected
4. Any overlap exists between salary and deemed employment income from Inside IR35 engagements
5. The tax calculation is consistent with the information shown in their HMRC Personal Tax Account (— that’s the account contractors were urged to check when HMRC last overcharged taxpayers by £3.5billion).

Until this IT-led overcharging issue is resolved, if HMRC’s figures on your tax bill do not tie back to your own records, further investigation is necessary.

What should umbrella company contractors review?

Umbrella workers should be able to keep overcharges by HMRC at bay by scrutinising five aspects:

1. PAYE income figures
2. Tax deducted under PAYE
3. Employer pension contributions
4. Changes in tax codes during the year
5. Benefits, deductions and adjustments processed through payroll.

Comparing your P60 with your umbrella company payslips, and reconciling those against your HMRC Personal Tax Account, is often the quickest way to identify potential overcharging or discrepancies.

What should I do if HMRC charged me too much tax?

The first step is not to panic.

If HMRC has charged you too much tax, hopefully you’ll be informed directly by HMRC.

Whether or not you’re contacted by HMRC, if you’re sure that you have been overcharged, you should contact your accountant or tax adviser.

What should you do if HMRC writes to you?

If you receive a letter from HMRC stating that your tax calculation may be incorrect, potentially due to overcharging, take five steps:

1. Read the letter carefully
2. Compare HMRC's figures against your own records
3. Gather supporting documents such as P60s, P45s, payroll records, pension statements and Self-Assessment returns
4. Check that all sources of income have been included correctly
5. Contact your accountant or tax adviser if anything appears inconsistent.

Is HMRC’s overcharging letter necessarily correct?

If you receive an HMRC letter notifying you of overcharges, it’s important not to assume that HMRC is automatically right, nor that they are automatically wrong. The calculation should be reconciled to your own records before any decision is made to accept or challenge the position.

How can contractors guard against future HMRC overcharges?

The best protection against future overcharging or incorrect HMRC calculations is maintaining your own records accurately and avoiding ‘one-and-done’ — so review your tax position regularly throughout the year.

What should contractors review regularly to pay only the tax that’s due?

Contractors conscious of HMRC overcharging risks should periodically review these six:

1. Their HMRC Personal Tax Account
2. PAYE coding notices
3. Umbrella payroll deductions
4. Pension contribution records
5. Self-Assessment submissions
6. Any correspondence received from HMRC.

Another good reason to shun the one-and-done approach is that small discrepancies identified early are often much easier to resolve than uncovering them years later through a correction exercise.

Shunning ‘one-and-done’ really is prudent with a tax authority unable to say how many of the 107,000 tax calculations under manual review face revision before re-issue.

The takeaway

HMRC’s underway recalculation exercise is a useful reminder that tax calculations are only as accurate as the information feeding them.

Contractors are often more exposed to discrepancies than traditional employees because of the way they move between umbrella employment, inside IR35 engagements and limited company contracting throughout their careers.

Most errors are likely to be relatively minor, but some may result in meaningful underpayments or overpayments. Whether you operate through a limited company, an umbrella company, or move between both during the tax year, now is prime time to review your records and ensure that HMRC's view of your affairs matches reality.

If HMRC does contact you, treat it as an opportunity to verify the position rather than simply accepting the outcome at face value. A relatively small amount of checking today could save a significant amount of time, stress and money later.