Millions of UK workers could be on the wrong tax code and may be owed money back from HMRC.
If the code is incorrect, individuals may have been overpaying tax and could be entitled to a refund.
The issue affects many Britons, who may be unaware that they are paying too much tax due to inaccurate information held by HMRC or changes in their employment circumstances.
Checking a tax code is a simple process that could potentially lead to a welcome windfall.
What are tax codes and why might they be wrong?
Tax codes are used by employers and pension providers to calculate how much tax to deduct from pay. They are based on the personal allowance — the amount an individual can earn before paying income tax.
Tax codes may be incorrect if HMRC holds inaccurate information about a person’s income or if there have been changes in their job situation.
Wrong tax code could see HMRC hold onto hard-earned money for months – how to check how much tax you’ll pay
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Common reasons for an incorrect code include starting a new job, having multiple sources of income, or changes to taxable benefits.
When the tax code is wrong, it can result in overpayment of tax, which could lead to an individual being entitled to claim money back. Alternatively, an underpayment may occur, leading to an unexpected bill later.
Common tax codes explained
The most common tax code for the current tax year is 1257L, which applies to those with one job or pension. This means an individual can earn £12,570 in one tax year before being taxed, as this is the current personal allowance.
Different circumstances call for different codes:
- A second job might result in the tax code BR, D0, or D1.
- Those with no personal allowance may have an 0T tax code.
- People exempt from paying tax would have an NT code.
- Welsh taxpayers have a C prefix in their tax code.
- Scottish income taxpayers are identified by an S prefix.
How to check a tax code
A tax code can be found on a person’s latest payslip or P45 if they’ve recently left a job. It’s also available on GOV.UK for those with a Government Gateway ID—a free 12-digit number that provides access to UK government services online.
MoneySavingExpert.com offers a free tax code calculator that can quickly help determine if a code might be incorrect.
This tool provides a simple way to check whether a refund is due or if there may be an unexpected tax bill.
Taking a few minutes to verify the tax code could save money or prevent future complications.
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How to claim a tax refund
If people have paid too much, the overpayment can be claimed back by contacting HMRC on 0300 200 3300 or through the HMRC app.
For the current tax year, HMRC will instruct the employer to correct the tax code, with any owed tax appearing in the upcoming pay.
Overpaid tax can be claimed back for up to four previous years, going back to the 2020/21 tax year.
Even if overpayment is suspected beyond four years, it’s worth contacting HMRC, as they may reimburse for longer periods in certain circumstances.
Refunds for past tax years will be sent as a cheque by post.
What to do if underpaid tax is discovered
If it’s found that too little tax has been paid because of an incorrect tax code, the missing amount will need to be paid. It’s better to deal with it quickly rather than facing a bigger bill later.
If the underpayment wasn’t the person’s fault, they might be able to have the tax forgiven by asking HMRC for an “Extra Statutory Concession” or an A19. However, this isn’t guaranteed to be approved.
HMRC will look at each case individually based on the specific situation.