More than 730,000 PAYE tax refunds went unclaimed last year, leaving £624 million in overpaid tax with HM Revenue and Customs (HMRC). The average repayment is worth £855, according to analysis by the Institute of Chartered Accountants in England and Wales (ICAEW). Workers are being urged to check if they have overpaid tax and are due money back.
Although Income Tax is deducted automatically through the Pay As You Earn (PAYE) system, overpayments can occur if circumstances change during the tax year. Common reasons include changing jobs, being put on an emergency tax code, working only part of the year, having multiple jobs, receiving a bonus, or starting to draw income from a private pension.
Why Refunds Go Unclaimed
Thomas Drury, money-saving expert at The Investors Centre, said many people wrongly assume any refund will be paid automatically. He stated: "People hear the word PAYE and assume everything is handled for them. But PAYE is only as accurate as the information behind it. If your tax code was wrong, your job changed, your pension income changed, or HMRC did not have the full picture at the right time, you may have paid more tax than you needed to."
HMRC may issue a P800 tax calculation if someone has paid too much or too little Income Tax during the year. If a refund is due, the P800 explains how to claim it. Repayments can be made through an online bank transfer using a Personal Tax Account, the HMRC app, or other official HMRC services. According to HMRC, online claims are usually paid within five working days, while cheque repayments can take up to six weeks.
Time Limit and How to Claim
ICAEW reminds taxpayers they normally have four years from the end of the relevant tax year to claim a PAYE refund. Drury said workers who changed jobs, had gaps in employment, worked multiple jobs, or were placed on an emergency tax code should consider checking whether they paid the correct amount of tax. He also urged people to review their tax code to ensure it reflects their current circumstances.
Taxpayers are warned to be cautious about companies offering to claim refunds on their behalf for a fee. Many PAYE refunds can be claimed free of charge directly through HMRC using a Personal Tax Account or the HMRC app. Drury added: "There are legitimate services out there, but many people do not need to pay someone to claim a straightforward PAYE refund. If HMRC has written to you, or your Personal Tax Account shows a refund, start with the official route."
Beware of Scams
People should also be wary of scam emails and text messages claiming to offer tax refunds. HMRC advises customers never to click links in unexpected messages and instead access their Personal Tax Account or the HMRC app directly to check whether any repayment is due.
How to Check Your Tax Code
The easiest way to check your tax code is to look at your payslip. Once you have your Personal Allowance tax code, you can go to the GOV.UK website and use the online "Check your Income Tax for the current year" service. This tool covers the current tax year and can be used to check your tax code and Personal Allowance, and to see if a tax code has changed. Other options include seeing an estimate of how much tax you will pay over the whole tax year. However, the service cannot be used by self-employed workers.
What the Tax Code Numbers Mean
The numbers in an employee’s tax code show how much tax-free income they get in that tax year, known as your Personal Allowance. You usually multiply the number in the tax code by 10 to get the total amount of income you can earn before being taxed. For example, an employee with the tax code 1257L can earn £12,570 before being taxed.
What the Letters Mean
Letters in an employee’s tax code refer to their situation and how it affects their Personal Allowance. Commonly used letters include: L (standard tax-free Personal Allowance), S (main home in Scotland), BR/SBR (second job or pension), M (spouse or civil partner transferred some allowance), N (transferred some allowance to spouse), and T (HMRC needs to review items). If your tax code has 'W1', 'M1', or 'X' at the end, it indicates an emergency tax code. A 'K' at the beginning means you have income not being taxed another way that is worth more than your tax-free allowance.
