Three quarters (75%) of those who have found they were on the wrong tax code have been overpaying HMRC by an average of £689 each, a total of £5.8 billion in the UK as a whole. One in six (15%) UK adults do not know if they are on the right tax code, and of those who checked their tax code 6% found they had been on the wrong tax code in the last 12 months.
Canada Life, which carried out the research, found nearly one in five UK adults (18%) have never checked their tax code.
You can check your tax code, which explains how much income tax you pay by checking your payslip, if you are paid via PAYE or a private pension.
Canada Life said the most common reason to check a tax code was due to a job change or having been on the wrong tax code before (8%).
Most people may find they are on the wrong tax code because they changed jobs, are working several jobs, or have switched to working for an employer following self-employment.
Over two-thirds (69%) of those surveyed by Canada Life said they were not sure how to claim back overpaid tax if they had been overpaying.
John Chew, tax and estate planning specialist, Canada Life, said “Your tax code is made up of a series of numbers and letters and HMRC uses this to work out how much income tax you pay. 1257L is commonly used where you have one source of income, either through a job or pension, and means you can earn £12,570 a year (your personal allowance) before you start paying income tax.”
Mr Chew said if someone thinks their tax code is wrong, they will need to contact HMRC directly.
He said, “Your employer (if relevant) won’t be able to do this for you. You can check HMRC has your correct, up-to-date information online. If you’re on the wrong code, you might need to update your employment details or whether you’ve had a recent change in income.”
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, so 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.
Chew said: “Remember, there are time limits to reclaim overpaid income tax, which is four years from the end of the tax year in which you are trying to claim so if you are in any doubt, the earlier you contact HMRC, the better.”
