MILLIONS of people may unwittingly be paying too much tax, but a simple check can reveal if you're one of those owed hundreds of pounds from HMRC.
The amount of money deducted from your earnings is dictated by your tax code and if it's wrong you could be paying too much.
One third of adults who have checked their tax code have, at some point, found it was incorrect, according to research commissioned by Canada Life.
The financial services company's research, conducted in spring last year, found that (75%) of those who found they were on the wrong tax code had overpaid HMRC by an average of £689.
This meant the collective sum owed to workers was about £5.8billion.
Luckily, checking your tax code is simple and it's easy to claim a rebate if you have overpaid.
If you are owed cash it's a great time to claim it as Brits are soon to see their bills rise by almost £700 a year in what's been dubbed “awful April” – follow Flying Eze's series to learn more.
Your five-digit tax code can be found on your payslip, P-60 or online HMRC account and denotes the threshold at which you should begin paying tax.
If your payslip shows the code for the wrong band and you have overpaid tax you can apply for the money to be paid back.
But, be aware that the wrong code could also mean you've paid too little in tax and you could end up owing money to HMRC.
Clare Moffat, tax and pensions expert at Royal London said: “Checking your tax code is important and it’s easy to do if you have a HMRC online account or you’ve downloaded the HMRC app, which allows you to see your tax code online.
“Your tax code indicates to employers and pension companies the amount of tax to deduct, so making sure it is right will help ensure the amount of tax you pay is correct.”
The research by Canada Life also found that 39% of people were unaware what the letters and numbers on their tax code meant.
Meanwhile more than two thirds did not know how to claim back any tax they might have overpaid.
The most common tax code is 1257L, which signifies that you're entitled to the standard tax-free allowance of £12,570.
Factors that could mean you're not entitled to the standard allowance include receiving employee benefits such as medical insurance, having second jobs or pensions or using schemes such as the marriage allowance.
You could also be on the wrong code if you've recently changed jobs or if you have more than one employer.
Clare added: “Going online to check that HMRC’s estimate of your taxable income is correct is a good habit to get into, especially if you receive a bonus or salary increase.
“If the amount HMRC expects your income to be is not accurate, it’s straightforward to change in your online account.
“That will ensure it reflects what you expect your income to be in the tax year ahead and should mean you won’t pay more tax than you need to in the next month’s pay.
“If you don’t change the amount of income you expect for the next tax year and do have extra tax deducted, the system should then automatically recalculate what you owe in tax the following month, or you can get in touch with HMRC to claim it back. But it’s much quicker to amend it yourself online and will hopefully mean that you aren’t out of pocket at any point.
“It can often feel difficult to find the time to sort out life admin but prioritising anything to do with tax is crucial so that you aren’t paying more money to HMRC than you should be.”;
How do I check my tax code?
You can find your tax code either on your payslip or by logging into your personal tax account online or via the HMRC app.
You may also have been sent a ‘tax code notice' in the post by HMRC.
To log in online or to the app and check your tax code you will need your GovernmentGateway ID and password.
If you don't have these you can use your National Insurancenumber or postcode and any two of the following:
- A valid UK passport
- A UK photocard driving licence issued by the DVLA (or DVA in Northern Ireland)
- A payslip from the last three months or a P60 from your employer for the last tax year
- Details of a tax credit claim if you have made one
- Details from a self assessment tax return (in the last two years) if you made one
- Information held on your credit record if you have one (such as loans, credit cards or mortgages)
What does my tax code mean?
Your tax code is a combination of letters and numbers.
The number will normally dictate the level of your tax-free allowance. So if your allowance is £11,000 the first four digits of your code will be 1100.
The letters have different meanings – here is a guide:
- L – You're entitled to the standard tax-free personal allowance
- M – Marriage Allowance: you've received a transfer of 10 per cent of your partner's personal allowance (£1,260)
- N – Marriage Allowance: you've transferred 10 per cent of your personal allowance to your partner
- S – Your income or pension is taxed using the rates in Scotland
- T – Your tax code includes other calculations to work out your personal allowance, for example, it's been reduced because your estimated annual income is more than £100,000
- 0T – Your personal allowance (which is currently £12,570) has been used up, or you've started a new job and your employer doesn’t have the details they need to give you a tax code
- BR – All your income from this job or pension is taxed at the basic rate (usually used if you've got more than one job or pension)
- D0 – All your income from this job or pension is taxed at the higher rate (usually used if you've got more than one job or pension)
- D1 – All your income from this job or pension is taxed at the additional rate (usually used if you've got more than one job or pension)
- NT – You're not paying any tax on this income
- Tax codes starting with K mean you have income that isn’t being taxed another way and it's worth more than your tax-free allowance
If your tax code begins with ‘W1', ‘M1' or ‘X' you've been placed on an emergency tax code and may need to update your details.
If you change jobs, take on an additional role or have another change in circumstances it is also worth checking your details and making sure you are on the correct code.
It could be that HMRC has not received information about your change of circumstances and therefore will not update anything.
What if my code is wrong?
If you think your tax code is wrong you will need to contact HMRC to tell them.
You can contact them by phoning 0300 200 3300, or sending a letter.
If you are sending a letter address it to, Pay as You Earn and Self Assessment, HM Revenue and Customs, BX9 1AS, United Kingdom.
If you are on the wrong tax code and have been paying too much, HMRC will change your code so you are paying the correct amount in the future.
You should also get reimbursed for any overpayments you have made.
If it is found that you have underpaid, and owe HMRC, you will usually have to pay the money back over 12 months.
But, this will only be the case if you earn enough income over your personal allowance to cover the underpayment and owe less than £3,000.
What if I don't check my tax code?
HMRC could also get in touch with you to let you know you're owed a tax rebate and they will do this via a P800 letter or a simple assessment letter in the post.
But as before, a P800 might tell you if you've not paid enough tax and have to pay it back.
A P800 letter will tell you if you can claim online through the government's website.
If you claim online the money will be sent to your bank account within five days.
You can also claim your refund through the HMRC app.
If your P800 letter tells you you will be paid your tax rebate via cheque in the post, you should receive it within 14 days of the date on your letter.
If you're owed tax from more than one year, you'll get a single cheque for the entire amount.
Tax experts have also urged people to remember that their side hustles could be taxable and may need to be taken into account.
Research has also warned workers to expect their tax rates to increase, with one in five taxpayers expected to be dragged into the 40% rate by 2027.
How do I file a tax return?
TO file a self assessment tax retun, you'll need to register with HMRC first, which will then issue you with a Unique Taxpayer Reference (UTR).
You must register for self assessment by October 5 if you have to file a tax return and you have not sent one before.
You can do so by visiting www.gov.uk/register-for-self-assessment.
If you've previously registered and already have a UTR, you don't need to go through this step again.
Once you've got your UTR, you can sign in via the “Self Assessment tax return” section of HMRC's website by visiting www.gov.uk/log-in-file-self-assessment-tax-return.
You can then file your self assessment tax return online.
The deadline for sending a return online is January 31 every year.
If you need a paper copy of the main Self Assessment tax return, call HMRC on 03000 200 3610 and request an SA100 form.
The deadline for sending a return using a paper form is October 31 every year.
You need topay the tax you oweby midnight on January 31 each year.
HMRC accepts your payment on the date you make it, not the date it reaches its account.
File late and HMRC will issue you with a fine.
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