Over eight million UK workers received tax refunds in the 2022/23 tax year, totaling £8.3 billion, averaging £943 per worker. The primary reason for overpayment is incorrect tax codes assigned by HMRC and applied by employers through the Pay As You Earn (PAYE) system. Tax codes determine the amount of income tax deducted from earnings and are crucial for ensuring accurate deductions. Job changes often lead to incorrect tax code assignments, resulting in overpayments. HMRC issues P800 letters after the end of each tax year (April 5th) informing individuals of overpaid or underpaid tax. However, even proactive individuals who check their tax codes may face delays in rectification due to high demand on HMRC resources. This complexity in the tax system highlights the challenges faced by taxpayers in navigating the system and obtaining accurate refunds.
The difficulty in determining overpaid tax lies in the complexity of the tax system, as acknowledged by consumer rights experts. Even accountants struggle with identifying discrepancies and securing refunds. Contacting HMRC by phone often involves long wait times, and obtaining a refund can take years. It’s advisable to avoid third-party companies offering to retrieve tax refunds for a fee, as they do not have privileged access to HMRC systems and simply replicate the process individuals can undertake themselves. HMRC typically releases data on the total number of taxpayers who overpaid in a specific tax year much later (e.g., data for 2023/24 will be available in May 2025).
Several factors contribute to incorrect tax codes, including new employment where HMRC hasn’t received income details promptly, transitions from self-employment to employment, and holding multiple jobs concurrently. HMRC often assigns emergency tax codes until individuals update their information. Underpaying tax due to an incorrect tax code is also possible, leading to future liabilities. Correcting tax codes promptly is essential to ensure accurate tax payments. Claiming refunds due to overpayment should be done as soon as possible to retrieve the rightfully owed money.
Filing a self-assessment tax return requires registering with HMRC to obtain a Unique Taxpayer Reference (UTR). First-time filers must register by October 5th. Registration can be done online, and those with existing UTRs can directly file their returns online by January 31st annually. Paper returns have an earlier deadline of October 31st. Tax payments are due by January 31st. Late filing incurs penalties. Checking tax codes can be done online through a personal tax account, payslips, the HMRC app, or Tax Code Notice letters. Accessing the online account requires a Government Gateway ID and password. Alternatives include using National Insurance number, postcode, and other identifying information.
Understanding tax code components is essential for interpreting their meaning. The numerical part usually represents the tax-free allowance. Letters signify different statuses, such as the standard personal allowance (L), Marriage Allowance transfer (M or N), Scottish taxpayer (S), additional calculations for personal allowance (T), exhausted personal allowance (0T), basic, higher, or additional rate taxation (BR, D0, D1), no tax payment (NT), or income exceeding tax-free allowance (K). Codes starting with W1, M1, or X indicate emergency tax codes, requiring updates to personal details.
Reporting incorrect tax codes should be done by contacting HMRC via phone (0300 200 3300) for the quickest response or by mail to the designated address. HMRC adjusts the tax code and reimburses overpaid tax for those paying too much. Underpayments usually require repayment over 12 months, provided earnings exceed the personal allowance and the underpaid amount is less than £3,000. HMRC also notifies taxpayers of rebates through P800 letters or simple assessment letters. P800 letters indicate if reclaiming online is possible, requiring a Government Gateway ID. Online claims result in refunds within five days. Refunds via cheque take up to 14 days. There’s a four-year limit for reclaiming overpaid tax from the end of the relevant tax year, emphasizing the importance of contacting HMRC promptly in case of suspected overpayment.
