Small mistakes cost British employees £5.8 million in overpaid taxes – make sure you check your tax code!
- TBA
- Jun 5, 2024
- 2 min read
A recent study by Canada Life revealed that due tax code errors, UK employees have so far overpaid approximately £5.8 billion in taxes.
Nearly a third of British adults found that their tax codes were incorrect upon reviewing their payslips, while nearly a fifth never checked their tax codes at all.
Understanding and verifying your tax code is crucial to avoid overpayment!
1. What is a tax code?
Your tax code is assigned by HMRC and indicates how much tax your employer or pension provider should deduct from your income.
It consists of numbers and letters, typically found near your National Insurance number on your payslip. The most common tax codes for the 2024-25 tax year is 1257L, but variations will exist depending on your personal circumstances.
2. What are the tax codes?
Here are the tax codes used by HMRC:
L: Entitled to the basic personal allowance
M: Marriage allowance recipient (10% of partner’s allowance)
N: 10% of personal allowance transferred to partner
T: Other calculations for personal allowance
OT: No personal allowance or starting a new job without providing tax details
BR: Income taxed at the basic rate
D0: Income taxed at the higher rate
D1: Income taxed at the additional rate
NT: No tax payable on this income
In addition, there are also a few emergency tax codes (W1, M1, X). These are temporary codes used in special situations until the correct details are provided to HMRC.
3. Will my tax code change?
HMRC may update your tax code automatically if:
You receive income from additional work or pensions
Your state pension amount changes
Your employer reports changes in work benefits
You claim marriage allowance or other forms of tax relief
4. What if my tax code is incorrect?
If you notice an error in your tax code, you should contact HMRC immediately.
HMRC will change your tax code to the appropriate one for your situation and then notify your employer and/or pension provider.
5. Applying for a tax refund
If you overpaid taxes due to an incorrect tax code, you may be eligible for a refund.
You must notify HMRC so that they can adjust your payroll deductions or issue a cheque for overpayments from previous tax years.
Claims must be made within four years, meaning any overpayments for the 2020-21 tax year must be claimed by the 5th April 2025.
6. Advice from TB Accountants
At TB Accountants, we highly recommend that you check your tax code regularly to ensure that HMRC is making the correct deductions.
It is your responsibility, not your employer’s, to ensure that your tax code is accurate. If you have any concerns, we recommend that you contact a qualified financial advisor or accountant for further assistance.