The complete guide to overpaid tax.

Did you know that during the first quarter of 2020, HMRC paid back over £33m in overpaid tax?

If you’re a business owner, employee or self-employed, there is a chance that you have overpaid tax to HMRC. HMRC have the responsibility of ensuring everyone pays the correct tax. However, due to poor tax calculations, there are times when people pay too much.

But how do you know if you’re on the correct tax code? Why would you receive a tax refund? Will this refund be paid to you automatically?

In this article, we will answer those questions and more. Let’s get started.

How Much Tax Should I Be Paying?

The amount of tax you pay will depend on how much you currently earn, as well as your own Personal Allowance and anything you’ve contributed during the year. You will be given a tax code by HMRC which changes when you alter your employment.

How Do I Know If I’m On The Right Tax Code?

Tax codes are used by employers and pension providers to calculate the amount of Income Tax to take from wages or pensions. In the UK, for most people with one job, 1250L is the tax code.

However, what does this number even mean? Well, these numbers show how much tax-free income you receive in that tax year, also known as your Personal Allowance. Usually, you can multiply the number in the tax code by 10 to calculate the total income before tax.

The letters in the tax code refer to their current situation and how has an impact on their Personal Allowance. You can find the full list of letters and meanings here.

How Do I Check My Tax Code?

The quickest and easiest way to check your tax code is to look at your payslip. After finding your Personal Allowance tax code, head to the UK.Gov’s website using the “Check your Income Tax for the current year” service. Here, you can see if a tax code has changed.

When Might I Get A Tax Refund?

If you have paid too much tax, you could be due a tax refund from HMRC. Some scenarios where you may get a tax refund include:

When you started a new job you were placed on an emergency tax code.
From self-assessment tax returns.
If you have more than one job, losing part of your personal allowance entitlement due to the other job applying the Basic Rate tax to your entire salary.
From work expenses tax reliefs and allowances.
Pay as you earn or PAYE is connected to an incorrect tax code that is issued by HMRC, or your employer has applied the incorrect one.
You are in the construction industry scheme (CIS).

Some other tax calculation circumstances include having more than one pension, redundancy payments to the UK government and leaving the country without using up your whole personal allowance.

How Do I Know How Much Tax I Should Be Paying?

Those who are employed or receive a pension should have a tax code from the employer or pension provider to calculate the amount of tax that should be taken from you.

However, there is a chance you are paying either too little or too much tax. Examples such as not updating your tax code due to a company benefit or pay rise that HMRC did not know about.

At the end of the tax year, if you haven’t paid the correct amount of tax, HMRC will send out a P800 or a Simple Assessment tax calculation. This will advise you on the steps to take to get a refund or pay any extra tax you owe.

If you have registered for Self Assessment, you will not receive a P800 or Simple Assessment, the amount on your bill will automatically be adjusted.

When Would I Receive A P800?

Some examples of when you might get a P800 include:

When you have finished one job, then started a new one, being paid by both in the same month.
When you have received Jobseeker’s Allowance or Employment and Support Allowance.
When you have begun to receive a pension at work.

When Does A P800 Get Sent Out?

P800s are usually sent out on 5 April, after the tax year ends and you will typically receive them by the end of November.

When Would I Receive A Simple Assessment Letter?

Some examples of when you might get a Simple Assessment letter include:

When you owe tax that cannot be automatically taken out of your income/
When you have to pay tax on the State Pension.
When you owe HMRC more than £3,000

Your Simple Assessment bill can also be paid online.

How Do I Check My Tax Calculation?

On your Simple Assessment letter, you will find the income you should have paid tax on. You will also find any income from pay, pensions, state benefits, savings interest and employee benefits.

You can compare these figures against records such as bank statements and your P60. For those with a state benefit paid every 4 weeks, you calculate the total paid in a year by multiplying your regular payment by 13 (not 12).

Does HMRC Refund Overpaid Tax?

Yes, HMRC will refund overpaid tax, however, sometimes it will be done through the refund application process, other times automatically. You must ensure to keep on top of your tax position, as you will find time limits on when you may make a claim for overpaid tax and apply for your tax rebate.

Does HMRC Automatically Refund Overpaid Tax?

For those due to receive a tax refund, HMRC must balance its books at the end of each tax year. To do this, they will view information from your employer, telling them how much you’ve earned as well as how much income tax you’ve paid.

The result will be the P800 tax notice, a total calculation of your taxes. Those who have overpaid will get a tax refund, usually paid straight back in your next wage packet.

However, things like business allowances and work expenses aren’t refunded automatically. You will need to be smart and keep on top of this, as it is your responsibility to make a claim. Otherwise, you won’t get your tax overpayment back.

How Quickly Does HMRC Repay Overpaid Tax?

Self-Assessment	HMRC will typically process tax rebate claims for overpaid returns within 12 weeks. In roughly two weeks, your cheque will arrive, however, for busier times, you may have to wait longer.
P800	Time frames will vary depending on how you are receiving the funds. For online claims, HMRC will send the money in five days. For cheques, they will be with you within 14 days from the date on your P800. This will be one cheque for the total amount owed, even if that is over more than one year.

If you do make an online claim within 45 days of receipt of your P800, HMRC will send you a cheque. You will receive this cheque roughly 60 days from the P800 date.

What Should I Do If I Think My Tax Is Wrong?

Firstly, you should contact HMRC. To query your simple assessment, you have 60 days to do this, either by telephone or in writing. You will find the contact details in your Simple Assessment letter.

How Do I Claim Tax Back That Hasn’t Been Refunded?

Your next steps are to use the tax calculation self assessment system. To set up in self-assessment will vary depending on your status, such as being self-employed, in a partnership, a sole trader or not self-employed.

You will need a 10-digit unique taxpayer reference (UTR) number that will be on your letter from HMRC when you first register online. The UTR number will be used to set up your self-assessment online account.

To make things extra secure, HMRC will post your activation code within seven working days. To sign in to your account for the first time, you’ll need this code.

What Information Do I Need To Reclaim My Tax Through Self-Assessment?

You will need the following information:

National Insurance number.
Charitable donations and pension contributions that are allowable for tax relief.
Documents showing income you’ve already paid tax on, such as your P60.
Income, including self-employed earnings, dividends, and shares interest.
Self-employed work expenses.

What Penalties Are There For Missing Self-Assessment Deadlines?

If you miss your self assessment tax return filing date or the deadline for paying your tax bill, HMRC has various fines. Some of these include:

Late Filing	Even if you don’t owe HMRC any tax, these fines will be applied. 1 minute+ late: Automatic £100 fine 3 months late: £10 per day, up to £900 maximum 6 months late: 5% tax owed or £300 (whichever is higher) 12 months late: 5% of the tax bill or £300 (whichever is higher)
Late Payment	30 days late: 5% tax owed 6 months late: 5% outstanding tax to that date 12 months late: 5% outstanding tax to that date