UK workers overpaid HMRC £5.8bn as they were on the wrong tax code, and many are at risk of losing out even more, research reveals.
Around a third (31%) of UK adults who checked their tax details had the incorrect codes, while one in six are still in the dark as to whether they have the right tax code.
HMRC pocketed billions of pounds, as almost three-quarters of those who were in the incorrect bracket were overpaying their tax by an average of £689, Canada Life finds.
Further, after this overpayment, there is still a sixth of UK adults who do not know if they are on the right tax code and risk losing out on even more deductions.
In February, over 2,000 pensioners claimed back more than £10,000 after they were put onto an emergency tax code. This was due to an emergency rate being applied by HMRC, as no tax code was submitted when those over-55s took advantage of their lump sum withdrawal.
What’s in a tax code?
- HMRC uses this to work out how much income tax you pay.
- The most common is 1257L, when you have one source of income, either through a job or pension.
- The 1257L code means you can earn £12,570 per year (your personal allowance) before you start paying income tax.
- You should have a different tax code for each income stream you receive, whether that is through work or via a pension.
- It can vary from the standard if you receive benefits from your job, such as a company car or healthcare.
- HMRC can also apply a different tax code if it wants to claim back the tax you’ve underpaid.
What to do if you’re on the wrong tax code
Less than half (42%) of UK adults know their code is correct, and nearly one in five (18%) have never checked.
Meanwhile, over two-thirds (69%) are unaware of the rules around claiming back overpaid tax.
So, John Chew, tax and estate planning specialist at Canada Life, has warned workers “if you haven’t checked your tax code(s) recently, now is a good time.”
If you are on the wrong tax code, you need to take the following steps:
- Contact HMRC directly, as your employer will not be able to do this, which can be checked using its online service.
- Use the service to update your employment details.
Chew added: “If you have found you have been on the wrong tax code, you may be owed a rebate, or you may owe money to HMRC.
“HMRC may already be aware of this, in which case you should be sent a tax calculation letter (a P800 form) or a Simple Assessment letter by the end of the tax year (April 5th), which will tell you how to pay HMRC or reclaim overpaid tax. You will only be sent one of these forms if you are employed or receive a pension.”
